Should Latin America Adopt the Dollar?

The removal of Venezuelan dictator Nicolás Maduro portends greater U.S. involvement in the Western Hemisphere, both politically and economically. One crucial question is whether it serves America’s interests to increase its soft-power projection by pushing countries throughout the Americas to adopt the dollar—already the world’s dominant reserve currency—through more formal arrangements for trade and financial relations.

Unlike Europe, where leaders deliberately forged a monetary union to achieve greater economic integration and enhanced security for the region, the U.S. has been ambivalent about seeking a common currency with its geographic neighbors. While the eurozone now boasts 21 nations all using the euro issued by the European Central Bank, there are more than three dozen different currencies in official use in the Americas. Only Ecuador, El Salvador and Panama have adopted the U.S. dollar as their nation’s currency.

Dollarization has been discussed at high levels before—a 1999 Senate Banking Committee hearing considered whether the U.S. should officially encourage it—but no firm resolutions were drawn. Washington’s current focus on regional advancement has set the pros and cons into sharper relief. It is time to reassess pushing the dollar in America’s backyard.

The pros: Dollarizing nations effectively give the U.S. the profit from printing money (seigniorage); it amounts to an interest-free loan to Washington. When U.S. firms and neighboring nations use the same currency, it reduces the cost of doing business and reduces uncertainty about future exchange rates. That in turn increases the capacity for productive capital and trade flows. The unfair trade practice of currency manipulation is eliminated.

The cons: Dollarized nations might assume they have a claim on U.S. support. If no special assistance is provided in difficult times, it could foster resentment that they have given up domestic monetary sovereignty. Instead of remaining politically committed to sound economic and fiscal reforms, they might seek to deflect blame for internal problems onto Washington.

If dollarization helped expand U.S. participation in Latin American markets, the U.S. would benefit disproportionately from their growth. Greater financial stability and rapid development in emerging-market nations within our hemisphere could serve U.S. national interests as shared prosperity strengthens political alliances.

But it would have to be clear at the outset that dollarization was a voluntary act—one that granted no privileged access to the Federal Reserve’s liquidity and dollar funding facilities—and that U.S. monetary policy wouldn’t be influenced by another country’s decision to adopt the dollar as its official currency.

One could argue that with its current 50% share of international payments, the dollar already is pre-eminent in the global economy. So why would it matter if other nations conducted their trade and investment transactions in U.S. currency rather than another?

Clearly, it matters to President Trump. “The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER,” he wrote on Truth Social in November 2024, using the acronym for a bloc of countries seeking to challenge the dollar’s dominance. (The bloc—Brazil, Russia, India, China and South Africa—has enlarged to include Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates.)

“We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar, or they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”

In July, Brazilian President Luiz Inácio “Lula” da Silva hosted the bloc’s annual summit in Rio de Janeiro, prompting Mr. Trump to post a reminder of increased tariffs for “any country aligning themselves with the Anti-American policies of BRICS.” Given Mr. Trump’s approach to dealing with both allies and rivals, recreant nations best take heed.

The connection between military capabilities and international monetary arrangements has a long history. As Robert Mundell, a Nobel laureate in economics, observed, “great powers have great currencies.” Mundell, who was an intellectual force behind President Reagan’s supply-side economic-growth agenda, is also considered the father of the euro. The Canadian-born economist posed the question: Under what circumstances is it advantageous for countries to relinquish their monetary sovereignty to join a monetary union or fixed exchange-rate international monetary system?

It isn’t too early to begin planning how monetary arrangements in the Americas might evolve in beneficial ways. World War II was still raging in July 1944 when the U.S. convened a conference with representatives from 44 allied nations in Bretton Woods, N.H., to hammer out an international monetary agreement based on fixed rates anchored by a gold-convertible U.S. dollar. In his book “Changing Fortunes,” former Fed Chairman Paul Volcker wrote that “the performance of the world economy in the first twenty-five years after Bretton Woods was exceptional.”

Let’s hope that strategic currency proposals foster a renewed impetus to make America’s money great again.