Dual Monetary Systems in the Western Hemisphere and the Cuban Transition
Joseph M. Perry, Louis A. Woods and Jeffrey W. Steagall, University of North Florida, Jacksonville, Florida
When the Cuban economy begins its ultimate transition from a centralized system to a market-oriented system, the experience will be both prolonged and disruptive of normal economic activity. Policymakers must confront the need for extensive structural changes, while having to deal with equally significant political and economic stresses. The institutional arrangements chosen by the transitional government will have a great bearing on the length and success of the transition.
The recent "dollarization" of Cuba by the Castro administration, from June to August, 1993, was both a tacit acknowledgment of the dual monetary system that now exists in the island state, and a move to attract more foreign exchange, primarily U.S. dollars. Dollarization also acknowledged the Cuban black market, where the U.S. dollar serves as a store of value and a medium for its transfer. Many other countries in and around the Caribbean either encourage or tolerate monetary systems in which U.S. dollars circulate along with the nation's own currency, and are further transferred by travellers' checks, credit cards, and personal bank checks or drafts. Cuba's adoption of a two-currency arrangement, in spite of the Castro administration's prior resistance to such a change, suggests that there are clear current advantages to a dual monetary systems.
Sanguinetty and Moreno have recommended that the dual monetary system in Cuba be made permanent and formal during the transition. They argue that a formal system, with both the Cuban peso and the U.S. dollar circulating as unlimited legal tender currencies, would both facilitate growth during the transition, and encourage the proper monetary and fiscal policies for Cuban economic recovery.
Since other hemispheric nations have adopted or accepted a dual system, some formally, but most informally, the question arises concerning the need for a formal system, having the characteristics specified by Moreno and Sanguinetty. Will Cuba benefit as much from an informal dual monetary system, as from an institutionalized system in which the U.S. dollar is accorded legal tender status?
This paper addresses that specific question. The initial sections of the paper focus on the nature of dual monetary systems, and present historical examples of such monetary systems in this hemisphere. The subsequent sections analyze current use of the U.S. dollar in both formal and informal dual monetary systems, emphasizing the underlying economic reasons for such arrangements. Finally, the advantages and disadvantages of the two systems are discussed, and their specific applicability to the Cuban situation is argued.
I. Monies in a Dual Monetary System
If a country chooses to adopt or accept the concurrent use of two different national monies in its economic system, the specific functions performed by those monies are of critical importance. Traditionally, money has been defined as a commodity that serves as a medium of exchange, a standard of value (or money of account), and a store of value. If the commodity is used in the denomination of debts, it also serves as a standard of deferred payment.[1]
The analysis of a typical tourist economy in the Caribbean, in which U.S. dollars are accepted for transactions and given in change at hotels, shops, and restaurants, shows the U.S. currency functioning both as a medium of exchange and as a money of account. Prices are often quoted in both U.S. dollars and the native currency, or in U. S. dollars alone. To the extent that local merchants and citizens hold U.S. dollars for any length of time, the currency (or other forms of U.S. money) also serves as a store of value. It is also clear that the international drug economy is an experienced user of U.S. dollars for transactions and store of value purposes. The dollar may also serve as a de facto standard of deferred payment, since drugs flow almost freely across international boundaries. The lack of adequate documentation prevents more extensive analysis.
Only if the U.S. dollar is established in a more formal monetary relationship can it perform as a legal standard of deferred payment. For this last function to be realized, the U.S. dollar must normally be defined as legal tender, and the law of the land must accept it as a measure of debt. In other words, dollars can be lent and repaid, or a mixture of native currencies and U.S. dollars can be lent and repaid, and the debt instruments can be denominated in both monies of account.
The nature of dual monetary systems is best understood when placed in a historical context. Concurrent use of several currencies (or coinages) has been a common feature of many economies in the past. With the passing of the international gold standard, however, the characteristics of dual systems have changed.
A. The Gold Standard and Bimetallism
During the centuries when the international gold standard held sway, and full-bodied coins were a major circulating medium, foreign coins were acceptable to merchants if their precious metal content was known. An exchange rate between the different national coins could be readily computed, based on the respective precious metal levels.
As a country's balance of trade fluctuated from positive to negative, inflows and outflows of precious metal coinage would occur, creating, in effect, a dual (or multiple standard) monetary system. For example, American merchants during the colonial period freely accepted British, French, Spanish, Portuguese, and Dutch coinage, reflecting the diverse trade flows of the time. The silver and gold content of the coins was the unifying factor that permitted the system to operate.[2]
Another metallic standard that has been adopted periodically in the past is the bimetallic standard. Kemmerer defines it as follows:
True bimetallism exists when a country opens its mints to the free and unlimited coinage of gold and silver, at a fixed ratio of equivalence called the mint ratio, giving to the coins of both metals (other than the fractional coins whose coinage is usually limited) a like standing before the law. The coins that enjoy the free coinage privilege are usually made unlimited legal tender.[3]
The stability of a bimetallic system depends critically upon the equivalence of the mint ratio between gold and silver, and the corresponding market ratio between the metals in international commodity markets. If the two ratios are equal, then both gold and silver coins may be minted, as both precious metals will be brought to the mint for coinage. If the two ratios are different, then Gresham's Law may cause the disappearance of one of the two precious metals from circulation, and the emergence of a de facto monometallic system.
In this context, Walton and Rockoff explain Gresham's Law as follows: "money overvalued at the mint tends to drive out of circulation money undervalued at the mint, providing that the two monies circulate at face value [are full-bodied]". Popular expressions of this relationship include "bad money drives out good" and "cheap money replaces dear". Note that the above definition can be applied not only to a bimetallic system, but also to a monometallic system in which some of the coins are debased (overvalued at the mint) and others remain full-bodied (undervalued at the mint), and to a system in which full-bodied coins and paper money circulate concomitantly.[4]
Kemmerer points out that international bimetallism was one possible means of reducing the effect of Gresham's Law. In this broader arrangement, several nations would band together in a monetary union. Each participating member would establish and maintain the same mint ratio between gold and silver. Kemmerer concludes that "the larger the number of countries that enter into such a monetary union, and the stronger that the countries are from the monetary point of view, the stronger will be the bimetallic standard that they establish".[5]
B. Modern Dual Monetary Systems
Since World War I, the gradual abridgement and abandonment of the traditional international gold standard have changed the nature of dual monetary systems. A gold exchange standard, distinguished by extensive intervention by central banks, characterized the 1920's. The Great Depression of the 1930's, followed by World War II, generated changes that led to the Bretton Woods institutions. Finally, in 1974, the United States led the way in abandoning gold as a standard money. Kemmerer's explanation of a dual monetary system applies both to historical and to current financial frameworks.
The dual standard exists when currencies on two different standards and without any permanent legal value ratio between them circulate side by side, each independently of the other at market rates varying one with the other. During the seventeenth and eighteenth centuries, gold and silver coins frequently circulated side by side this way in Europe.[6]
Note that the system here described is characterized by a flexible exchange rate between the currencies, and only one of the currencies possesses legal tender properties.
For the purposes of this paper, a dual monetary system in which only one of the currencies is legal tender will be designated an informal dual monetary system. A dual monetary system in which both of the currencies have been accorded legal tender status by government will be termed a formal dual monetary system.
Note that the term, "currency substitution", has gained wide use in the literature over the past decade. Ramírez-Rojas defines currency substitution as "the demand for foreign fiat money by domestic residents of a country", regardless of the reasons for that demand. This definition suggests that currency substitution will normally be one of the characteristics of a dual monetary system, but is not an adequately broad concept to describe the complex of institutional arrangements contemplated in this paper. Accordingly, the earlier, more comprehensive term, is used here.[7]
Selected examples of the systems classified in this section will serve to illuminate their operating characteristics and to illustrate the operation of Gresham's Law.
II. Dual Monetary Systems of the Eighteenth and Nineteenth Centuries
During the centuries of mercantilistic expansion, when gold and silver served as standard monies in both hemispheres, the circulation of more than one currency or coinage was common in most trading countries. In some instances, the relationship was not only accepted, but was accorded a formal status in law. Representative examples include the use of foreign coinage as legal tender in the United States, and the use of trade dollars in eastern countries.
A. U.S. Monetary History, 1792-1857
The United States was legally on a bimetallic standard from the Mint Act of 1792 until the Coinage Act of 1873. The initial authorized coinage in 1792 included both silver and gold coins, at a mint ratio of 15 to 1, as recommended by Alexander Hamilton. In order to encourage an adequate circulating coinage, Congress made foreign gold and silver coins legal tender in 1793. This status was periodically removed from and reinstated for foreign coins from 1797 to 1809, when their legal tender status was eliminated by Congress.[8]
The most common circulating coin during the early national period was the Spanish or Mexican "dollar", the eight-real coin. Hamilton used this coin as a pattern for the first American silver dollars, giving them a similar, but slightly lower, silver content. It was common usage in the market place to cut the "piece of eight" into halves, quarters, and eighths to make fractional coinage, or "bits", giving rise to "two bit" clipped pieces worth 25 cents, and "four bit" pieces worth 50 cents. Since the early coinage acts did not create acceptable fiduciary coins, these foreign fractional coins continued circulating long after they were declared not to be legal tender. They gradually became so worn that their intrinsic value was far less than their trade or exchange value.
From 1792 to 1834, the market ratio between silver and gold averaged 15.61 to 1. Silver was thus overvalued at the mint, discouraging the minting of gold coins. Over this period, the total minting of silver coins was $36.3 million; gold coins amounted to only $11.8 million.[9] Gresham's Law clearly held. In addition, the coinage of silver dollars was discontinued from 1806 until 1836. Although the U.S. dollars contained less silver than their Spanish/Mexican counterparts, they were beautifully made and, when new, very shiny. The citizens of the West Indies found the U.S. coins so attractive that they demanded them in exchange for the heavier piece of eight. U.S. dollars thus began flowing out of the country, to be replaced by foreign coinage. Minting ceased to discourage this outflow.
By the 1830's, the supply of coins in the United States was meager. There were very few gold coins circulating, and no silver dollars. The principal circulating U.S. coin was the silver half dollar. The fractional coinage of the day was mainly "clipped and worn foreign coins of small denominations".[10] The mint ratio and related political decisions of early administrations thus threatened the existence of a dual monetary system, in which domestic and foreign coins circulated at par. Instead, a largely monometallic system operated, based primarily upon silver. It can also be argued that these policies encouraged the expansion of state banking and the widespread emission of paper money by those banks.
In 1834, the effects of Gresham's Law were once again contemplated by Congress, when the U.S. mint ratio was changed to 16.002 to 1. The Coinage Act of 1837 reduced the ratio slightly, to 15.9884 to 1. Since this level was greater than the international market ratio, estimated to be 15.69 to 1 at the time, it effectively overvalued gold at the mint. The first American gold rush, in the Southern Alleghenies, had begun around 1828. The change in mint ratio thus appeared to be partly an encouragement to the domestic gold-mining industry.
Its practical effects were not too striking before 1850. Silver dollars disappeared from circulation, as did some of the other silver coins. The circulating fractional coinage, most of it still foreign, remained unaffected, and was generally adequate in supply. Once gold was discovered in California, in 1848, and gold from the Australian fields began entering the country, the situation changed. By 1853, the market ratio was back down to about 15.33 to 1. Almost all domestic silver coins dropped out of circulation. To meet the need for change, fractional parts of Spanish dollars were more extensively used, as were torn portions of paper banknotes, known as "rags".
The Fiduciary Coinage Act of 1853 finally recognized the folly of using only full-bodied coins. It authorized the minting of fractional coins having a precious metal content far below their exchange value. Coinage was increased, few of the fiduciary coins were melted down, and the "small change" crisis passed. In addition, large amounts of gold coins were being minted.
By 1857, domestic coinage was deemed adequate enough to meet the needs of trade. Legal tender status was officially removed from all foreign coins. Circulating Spanish fractional coinage was redeemed at par by the Government (most of these coins or coin parts contained so little silver that they were effectively fiduciary coins) and was melted for recoinage into American money.[11]
It thus took the fledgling United States government 65 years to institute an effective domestic monetary system. During that period of time, a dual monetary system was one potentially effective and practical means of providing for the needs of trade. Without the inflow and usage of foreign coins, particularly the Spanish/Mexican eight-real coins, early national development would have been difficult indeed. Unfortunately, political decisions concerning the mint ratio impaired the effective operation of the dual monetary system.
B. Trade Dollars
During the seventeenth century, European nations competed for the "East Indies trade", which included not only commerce with southeastern Asia, but extensions to India, Japan, and China. The Dutch and the Portuguese established early footholds, so that their trading companies dominated this part of the globe until 1699. Thereafter, the English became increasingly strong competitors.
Goods purchased by Europeans in the Orient were generally paid for with silver specie. Not surprisingly, the most common and most acceptable silver coins were Spanish, which limited the trading ability of those nations not possessing adequate stockpiles of the coinage. Accordingly, both the Dutch and the English struck special coins for the far eastern trade, approximating the silver content of the Spanish piece of eight. These were the first of a long series of special "trade dollars",
coins that were struck specifically for foreign trading purposes, and for continued circulation in foreign markets.[12]
Non-Spanish coins were accepted slowly and reluctantly by far eastern traders, both because they were unfamiliar, and because of the fear of debasement. Nevertheless, most of the trading nations ultimately established a separate coinage for what became known as the "China trade". The coins included British Hong Kong dollars, Venetian ducats, French Indo-China piastres de commerce, Japanese silver yen, and, perhaps the hardiest perennial of all, the Maria Theresa Thaler. The United States attempted to introduce its own trade dollar in 1873, raising its silver content to approximate the Spanish coins, but redeemed and retired those in circulation beginning in 1887. Over the years, almost 36 million trade dollars had been minted. About $7.7 million worth of trade dollars were redeemed, most of which were minted into subsidiary coins.[13]
Although the United States decided to retreat from the trade dollar markets, other nations continued active coinage. The Maria Theresa Thaler was coined for over two hundred years, virtually all of the later coins still bearing the original design and issue date of 1780. The issuance of trade coins by so many nations, and the acceptance of this coinage by merchants in many eastern countries, created a multiple monetary system, unified by silver (or, more realistically, by the silver content of the Spanish eight-real coin). It existed because of market needs for liquidity and purchasing power, needs that could not be satisfied by a single coinage alone. Eastern merchants therefore accepted the necessity of a variety of national coins, adapting their merchandising methods and accounting systems to fit that model. Necessity, as in the case of the early national United States, bred invention and adaptation.
Both of these examples illustrate the virtue of a dual or multiple monetary system as a facilitator of economic growth. In the case of the early United States, a formal dual monetary system, followed by an informal system to 1857, encouraged the inflow of funds needed for infrastructure expansion and frontier growth. When the system failed to provide an adequate financial base for growth, the domestic private banking system emerged to supplement the circulating coinage with paper banknotes. The legal status of trade dollars varied from one country to another. They were nevertheless a clear aid to trade expansion in the eastern hemisphere for over two centuries.
Friedman bolsters this conclusion by arguing that a viable bimetallic system in the United States during the 1866-1896 period would probably have mitigated the secular deflation that occurred during that period. By forcing a gold standard, at a time when the annual rate of international gold production was slowing and international silver production was expanding rapidly, the U.S. Congress
strongly influenced a half-century of national growth.[14] A functioning dual monetary system would arguably have exerted a positive impact on the national economy between the Civil War and the First World War.
III. Dual Monetary Systems in this Hemisphere
Although many dual monetary systems exist in the Western Hemisphere, only one formal system operates. It is found in the Republic of Panama. There the U.S. dollar is legal tender. U.S. Federal Reserve notes circulate as the country's paper currency. The Panamanian balboa is the local currency. It was created in 1904, and is tied to the U.S. dollar, with a fixed exchange rate of one to one. Panamanian coins are issued in the same denominations, weights, and sizes, as U.S. coins.[15] Although technically a formal dual monetary system, the monetary framework in Panama in practice is a dollar-based system with the balboa as an appendage. The low importance of the national currency is signaled by the fact that Panama does not have a central bank. Instead, the limited nonmonetary central bank activities carried out by the government are effected through a state-owned commercial bank.
Such a system would not exist --and the country of Panama would not exist-- except for the Panama Canal. When the Canal was completed, the United States ensured control of this important waterway by supporting a revolutionary movement for independence. Panama was created out of former Colombian territory, and, upon independence in 1903, immediately became a client state of the United States. The Panama Canal Zone, a sixteen-kilometer-wide strip of land immediately surrounding the Canal, was established as United States property. Panama itself was essentially a United States colony until 1979, when the Carter administration negotiated a treaty to return the Canal to Panama at the end of the century.[16] As will be pointed out below, the Panamanian system presents both advantages and disadvantages for the Panamanian people.
Informal systems in which the U.S. dollar is accepted for certain exchange purposes exist throughout this hemisphere. In fact, such systems have operated for many decades. Kemmerer records the following reminiscence:
In 1919 the writer saw such a dual system in full operation in the city of Guatemala in Central America. Here the principal money at that time consisted of depreciated bank notes --fiduciary standard money-- issued by a few local banks and circulating in the neighborhood of three to four cents United States currency to the peso. Along with them there circulated large quantities of United States money, the peso value of the United States dollar varying from day to day and the exchange rate being regularly quoted in the daily press. In buying goods, one could pay in one or the other money as he desired at the current market rate of the day. In the early days of the American occupancy of the Philippine Islands and of Puerto Rico, there existed such dual currencies, the local silver standard or fiduciary standard money of the country circulating side by side with United States gold standard money.[17]
Today, Mexican towns and cities on the U.S. border provide familiar examples. Tijuana, just across the border from San Diego, has an economy that literally runs on U.S. dollars. This phenomenon exists far beyond the territorial boundaries of the United States, however. Table 1 describes the monetary situation in countries in and around the Caribbean, with a particular focus on the acceptability and use of the U.S. dollar.
These examples could be multiplied by considering other countries and trade centers in Latin America. While Table 1 suggests the importance of the U.S. dollar in the Caribbean, it understates the extent of its circulation. The monetary system in Belize may be used as an illustration to amplify this point.
The Case of Belize
Belize has maintained a fixed exchange rate between the U.S. dollar and the Belizean dollar since 1976.[18] The country has accepted the existence of a dual monetary system, in which both currencies circulate, but only the Belizean dollar has legal tender status. It is also the money of account in which debts are denominated. Visitors to the country may officially exchange U.S. dollars for Belizean currency only at major financial institutions, including a branch of the Bank of Belize at the Goldson International Airport. In point of fact, dollars are informally exchanged throughout the country, and are accepted as payment at hotels, restaurants, many shops, vehicle rental agencies, and tourist agencies. The cash transactions usually take place at the official exchange rate of two to one. Major traveller's checks may be used at most hotels, larger restaurants, and stores, often at a an exchange rate that is more favorable than the official one. Credit card transactions are carried out in both currencies, depending on the current needs of the merchant. Although the fact is not advertised by merchants, dollar-denominated checks drawn on U.S. banks are also accepted for major purchases in many cases. They are routinely processed through the Belizean commercial banking system.
Table 1. Monetary Systems and Dollar Acceptance in Caribbean Countries
COUNTRY OFFICIAL EXCHANGE ACCEPTANCE OF US ACCEPTANCE OF US
CURRENCY RATE DOLLARS IN TRADE CHECKS AND CREDIT
(UNITS/US$) CARDS
Anguilla Eastern $2.70EC Wide. Hotels and Bank/travelers
Caribbean restaurants. US checks at some
Dollar (EC) Dollars given in hotels
change. Prices restaurants; also
quoted in EC major credit
dollars. cards.
Antigua Eastern $2.70EC Almost everywhere. Major credit
Caribbean cards at all
Dollar (EC) major hotels,
some shops and
restaurants.
Aruba Netherlands 1.77NAf Everywhere. Major credit
Antilles florin cards at hotels,
or guilder (NAf) restaurants, most
shops.
Barbados Barbados dollar $2.00Barbados Shops, hotels, Major credit
restaurants. cards at hotels
and restaurants,
some shops, with
surcharge.
Belize Belize dollar $2.00Belize Hotels, Major credit
restaurants, some cards at hotels
shops. and restaurants,
some shops.
Bonaire Netherlands 1.77NAf Almost everywhere. Major credit
Antilles florin cards at most
or guilder (NAf) hotels,
restaurants, and
shops.
British Virgin U.S. Dollar Everywhere. Major credit
Islands cards widely
accepted.
Cayman Islands Cayman dollar $1.00CI Hotels, Major credit
restaurants, cards widely
shops. accepted. Prices
quoted in both
currencies.
Colombia (the Colombian peso 725CP Widely accepted Major credit
Caribbean coast: in hotels, shops, cards accepted at
Cartagena, Santa restaurants. major hotels,
Marta, San Andrés) Best exchange restaurants.
rate at banks.
Curacao Netherlands 1.77NAf Accepted almost Major credit
Antilles florin everywhere. cards accepted
or guilder (NAf) widely.
DominicaEastern
Caribbean Dollar
(EC)$2.70ECAccep
ted throughout
the island, Bank
exchange rate is
best.Major
credit cards
accepted at
hotels and
restaurants.
COUNTRY
OFFICIAL Dominican peso 12.50DP Accepted at shops Major credit
CURRENCYEXCHANGE and hotels. cards accepted at
RATE hotels,
(UNITS/US$)ACCEPT restaurants,
ANCE OF US larger stores.
DOLLARS IN Also travelers'
TRADEACCEPTANCE checks.
OF US CHECKS AND
CREDIT CARDS
Dominican Republic
Guadeloupe French franc 5NF Accepted at some Major credit
shops and hotels. cards accepted at
Banks have best hotels and
exchange rate. restaurants. US
dollar travelers'
checks preferred.
Haiti Haitian gourde. 5HG Accepted almost Major credit
Shops quote everywhere. cards accepted
prices in widely.
"Haitian Travelers' checks
dollars" equal preferred.
to 5 gourdes.
Jamaica Jamaican dollar $22JDS Accepted very Major credit
(JDS) widely. Prices cards and
in tourist areas travelers' checks
quoted in US widely accepted.
dollars.
Martinique French franc 5NF Accepted widely. Major credit
Francs best for cards and
taxis and travelers' checks
restaurants. preferred.
Banks have best
exchange rates.
Mexico (the Mexican peso 3.39N$ Widely accepted. Credit cards and
Caribbean coast: Cash payment travelers' checks
Cancun, Cozumel, sometimes avoids widely accepted.
Isla Mujeres) the VAT.
Montserrat Eastern $2.70EC Widely accepted Credit cards and
Caribbean at hotels, shops, travelers' checks
dollar (EC) restaurants. accepted widely.
Puerto Rico U. S. dollar Everywhere. Everywhere, as on
the mainland US.
SabaNetherlands
Antilles florin
or guilder
(NAf)1.77NAfAlmo
st
everywhere.Credit
cards and
travelers' checks
widely accepted.
COUNTRY
OFFICIAL French franc 5NF Accepted by Major credit
CURRENCYEXCHANGE stores and cards accepted
RATE restaurants. No spottily. But
(UNITS/US$)ACCEPT discount given travelers' checks
ANCE OF US for dollars. widely accepted.
DOLLARS IN
TRADEACCEPTANCE
OF US CHECKS AND
CREDIT CARDS St.
Barthelemy
St. Kitts and Eastern $2.70EC Bills (not coins)
Nevis Caribbean generally
dollar (EC) accepted in
trade. EC$ best
for small
purchases.
St. Lucia Eastern $2.70EC Accepted widely Major credit
Caribbean by hotels, shops, cards accepted at
dollar (EC) and restaurants. most hotels and
restaurants, as
are travelers'
checks.
St. Martin/St. French 5NF/1.77NAf Dollars accepted Major credit
Maarten franc/Netherland everywhere. Some cards and
s Antilles discounts for US travelers' checks
florin or dollars. widely accepted.
guilder NAf)
St. Vincent and Eastern $2.70EC US dollars Major credit
the Grenadines Caribbean accepted in most cards accepted by
dollar (EC) hotels, shops, some major hotels
restaurants. and restaurants.
Prices quoted in Travelers' checks
both currencies. widely accepted.
Trinidad and Trinidadian $4.25TT Accepted
Tobago dollar (TT) everywhere. Use
of $TT sometimes
brings lower
price.
US Virgin Islands U.S. dollar Everywhere. As on the
mainland.
Venezuela (the Venezuelan 170B ATMs throughout Major credit
Caribbean coast: bolivar Caracas. Bolivar cards and
Caracas, Puerto major currency. travelers' checks
La Cruz, etc.) accepted at
hotels, shops,
and restaurants.
Source: Birnbaum's Caribbean: 94.
Many Belizeans hold cash balances at home, in the form of U.S. dollars, as a store of value, because many Belizeans take shopping trips to the United States, and because U.S. dollars are freely convertible into most other major currencies. In addition, money changers often give a better rate for the U.S. dollar. It is noteworthy that Belize is the former British Honduras, and that the U.S. dollar became its key currency before the country gained independence from the United Kingdom, in 1981. Although Belize is an active member of the British Commonwealth, English pounds are not generally accepted in the country. Even the money-changers at major border points of entry refuse to accept pounds. They are usually exchangeable only at banks.
The situation in Belize is not unique. Other countries around the Caribbean, particularly those Commonwealth countries having a thriving trade with the United States, exhibit the same wide use of the dollar. Its circulation economizes on the use of their own currency, provides needed foreign exchange, and facilitates the inflow of funds supporting economic growth.
Go to Part II