This decline will cause interest rates to rise until it becomes attractive for investors to hold local currency again. The process involves adopting the U.S. dollar as the official currency. The national currency unit ceases to exist. Monetary policy is made by the Federal Reserve in the United States with no formal input from officials in the dollarized economy. Monetary Union Members of a monetary union agree on a common currency, either by adopting an existing one or issuing a new currency altogether.
Monetary policy is made collectively, with input from each member of the union.
In Mexico, business leaders recently petitioned President Zedillo to move toward fully dollarizing the nation's economy. The continuing effects of Mexico's peso crisis in 1994 and 1995, coupled with the strong economic ties between the United States and Mexico, make the dollarization debate there more lively. The loss of sovereignty that accompanies dollarization is a difficult political hurdle in Mexico at present. Despite Mexico's apparent hesitancy, Central American countries are actively considering a move toward dollarization, and their leaders plan to meet in July to formally discuss the idea. Brazil shows no interest in pursuing official dollarization despite its recent economic troubles and hyperinflationary bouts in the 1980s and early 1990s.