In This Review

Playing Monopoly With the Devil: Dollarization and Domestic Currencies in Developing Countries
Playing Monopoly With the Devil: Dollarization and Domestic Currencies in Developing Countries
By Manuel Hinds
Yale University Press, 2006, 304 pp.

This interesting and sometimes amusing book strongly challenges the conventional view -- held by many economists, most politicians, and almost all of the public -- that each country should have its own currency. It questions the alleged merits of national currencies for most developing countries, even those with good management, and argues (drawing especially but not exclusively on experiences in Latin America) that in practice national currencies -- especially the monetary and exchange-rate policies associated with them -- have been poorly managed, aggravating rather than reducing macroeconomic instability. Publics respond by holding their assets in some foreign currency, predominantly U.S. dollars. Hinds, a former finance minister of El Salvador (which adopted the U.S. dollar as its currency in 2002), argues that the professional literature on "optimum currency areas" is incomplete and misguided and that many developing countries would improve their overall economic well-being by abolishing their national currencies in favor of a respected foreign currency.