But chief policymakers at both the Fed and U.S. Department of the Treasury have stated that the policies of the United States will not be altered to adapt to the economic considerations of countries that choose to dollarize. So foreign governments that may be considering full dollarization must do so with the understanding that U.S. monetary policy will remain focused on domestic issues. Countries debating whether to dollarize should also consider how reversible that policy would be. Although a government can always choose to end its dollarization policies, the risk of financial instability from this move would be a powerful force working against reversing dollarization. There is also a measurable monetary cost, called lost seigniorage, involved with forgoing a national currency.
Seigniorage is the revenue gained by issuing currency.
Adopting the dollar as the official currency has both political and economic ramifications for a nation. The loss of sovereignty that accompanies the surrender of monetary policy control, the national currency and the central bank is likely to spark opposition within a country. Such opposition is evident in some Latin American countries where the dollarization debate is under way. Although the business community in many of these nations appears to back dollarization, other segments of society may view the loss of sovereignty as too great a price despite the economic benefits. The outcome of this debate will be one of the most important economic developments in Latin America in the near term.