The Impact of Dollarisation

By Radio Netherlands Foreign Affairs editor, Saskia van Reenen, 10 May 2001

Following the example of other Central American countries, Guatemala has begun using the US dollar. Since the beginning of this month, Guatemalans have been able to buy and sell in dollars, and to open dollar-accounts at the national bank. It's intended as a safety net should the local currency—the quetzal—hit a crisis. But are Guatemalans actually profiting from dollarisation?

Baskets of fruit, dried fish, beans and second hand clothing are displayed in small stalls. On the marketplace of Quetzaltenango local products of the Indian Maya population are traded. The women wear colourful skirts and carry their babies on their backs.

People still pay with the national currency of Guatemala. Most merchants are unaware of the dollarisation. They still calculate prices in quetzales. Merchant Don Remigio has read about the dollarisation in the newspaper. He does not disapprove. But, he admits, he has no choice anyway, because the government has approved it.

Exchange Rates

If his clients pay with dollars, Don Remigio is willing to accept them. He is not expecting to lose from it financially. He has talked it over with some friends and they agree that it is important to look closely at the exchange rate.

But according to Jeroen Bollen, a Dutch expert in the Guatemalan coffee trade, exchange rates can make a difference for merchants on the long run. For instance when you pay a certain product with dollars and you're getting your change in quetzales, then there is a very real possibility that because of the exchange rate you will lose some money. The people may suffer from the effects on the family economy.

Dollar Accounts

Some people are profiting of dollarisation in Guatemala. Not the merchants in the marketplace, but members of the economic elite. Employers are now also allowed to pay their employees in dollars. Banks who offer their clients dollar accounts foresee a rise in their clientele. Alfred Dethlefsen of Banco Reformador in Quetzaltenango expects many people to exchange their quetzales for dollars.

The supervisor of the Quetzaltenango marketplace Don Juan is not very optimistic about the dollarisation. He fears it will only widen the gap between rich and poor.

Foreign Investment

Since the introduction of a dual currency system, there's been much speculation that the quetzal will eventually disappear. Jeroen Bollen is one of those who think this will take place. He says that with the dollarisation Guatemala hopes top attract foreign investors. The United States, Canada and Mexico have signed a free trade association and are seeing Central America as a marketplace for their products. For them, it would be easier and safer if Central America uses the dollar instead of national currencies.

Merchants have yet to see what they'll get for their coins, if the quetzal disappears altogether. But Guatemalans with dollar bank accounts can rest assured that their money won't lose its value.