Latin America: Dark horse leads race to greenback
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Latin America: Dark horse leads race to greenback

Could El Salvador, a country of 6 million people, be about to steal a march on its larger Latin American neighbours?

Since Brazil's devaluation in January, politicians and economists in the continent's larger economies have begun to fret about their own exchange-rate regimes. Argentina's president, Carlos Menem, was the first to suggest that it might be time for Latin American states to give up the pretence that they enjoy monetary sovereignty and adopt the dollar.

In Argentina's case, dollarization would not be such a big step. It operates a currency-board system: every peso in circulation is backed by a dollar in central-bank reserves.

Then Mexicans started to toy with the same idea. The country's economy is dominated by trade with the US and the two neighbours are already linked, with Canada, by the North American Free Trade Agreement. Why not follow the European example and go for monetary union too? The snag is that it might take a few years for Mexico to ditch its currency. Fear of US economic domination still runs strong there. Mexicans might have to wait for a bilateral treaty with the US before they can expect to use yankee dollars.

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