WILLEMSTAD / PHILIPSBURG – The current exchange rate arrangement of the monetary union of Curacao and Sint Maarten has been a regular subject of debate over the years. The country packages of reforms (Landspakketten) for Curaçao and Sint Maarten brought the topic back to the fore. The packages included the requirement that a study be done by an independent party on the societal costs of an own currency versus dollarization.
This study is included in the Staff Report of the IMF’s 2021 Article IV Consultation of Curaçao and Sint Maarten. Considering the current interest in the topic, the Centrale Bank van Curaçao en Sint Maarten (CBCS) has published a position paper that provides an in-depth analysis on the benefits and costs associated with adopting the United States (U.S.) dollar as official currency, i.e., dollarization.
Particularly in Sint Maarten, the issue of dollarization as an alternative to the current arrangement is frequently mentioned because the U.S. dollar widely circulates and is de facto accepted as a means of payment for goods and services.
The CBCS’s position paper provides an extensive overview of various exchange rate systems. It explains the differences between a conventional peg, such as the one currently in use by the monetary union of Curaçao and Sint Maarten, a floating exchange rate system, and full dollarization, i.e., when a country adopts the U.S. dollar as legal tender.
Furthermore, the paper provides detailed examples of countries that have dollarized and the reasons that led to that decision, along with descriptions of the advantages and disadvantages they experienced with such an arrangement.
