On the Dominant Currency Paradigm

Abstract

The controversy between fixed and flexible exchange rates does not end. One of the most recent developments in international finance is the Dominant Currency Paradigm, PMD, and it is likely that some supporters of fixed rates will see this as another argument in their favour. The PMD refers to the enormous proportion that the US dollar occupies as a billing currency in the volume
of commercial and financial operations -even between economies other than the United States-, and one of its main policy implications consists of a strong questioning of the effectiveness that is usually associated with exchange rate depreciations
to resolve not only the imbalances in the balance of payments, but also to promote the export development that many countries like El Salvador require to get out of the stagnation and experience sustained economic growth.