Opening Statements of Committee Members

Prepared Testimony of Senator Chuck Hagel (R-NE)

Hearing on Official Dollarization in Emerging-Market Countries

10:00 a.m., Thursday, April 22, 1999

Good Morning and welcome to our distinguished witnesses.

The issue of official dollarization has important implications, both for the United States and for those countries considering the adoption of this policy. The primary question that needs to be answered is how dollarization would impact the U.S. economy. Would it provide tangible benefits such as greater stability in export markets for U.S. goods? What would the Fed's role be? What is the down-side for the U.S.?

The Asian financial crisis left many exporters in Nebraska with smaller markets, shrinking profits and lost opportunities. This was especially true of the agricultural sector in Nebraska. When the Indonesian rupiah or the Korean won lost their value overnight, U.S. exports were suddenly more expensive. This led to a decline in demand for U.S. goods in many of those Asian nations and aggravated an already lopsided trade deficit. If some of those nations had, as their official currency, the U.S. dollar, would U.S. exporters have suffered to the same degree?

We also need to know how dollarization might affect the countries considering this policy. What would ceding monetary policy to the U.S. Federal Reserve mean to dollarizing countries? On January 1st of this year members of the European Union adopted a single currency. I would be interested in hearing from the witnesses on what early lessons have been learned from the European experience. Do these lessons give us information that would be pertinent to the dollarization debate.

Last November I traveled to Argentina and, in fact, discussed the dollarization issue with Argentine government officials. If Argentina does fully dollarize its economy, it could provide a test case for the rest of the region. If dollarization proved to be successful, the U.S. dollar could become the Western Hemisphere's version of the Euro.

Again, I want to thank the distinguished witnesses for taking time to discuss this issue with our subcommittees. I look forward to the testimony.

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