In the process of dollarization, in which the central bank will have to buy back the local currency, a large portion of the current stock of international reserves is needed. Although the need for international reserves to support the exchange rate is eliminated, it is still crucial that the central bank retains an adequate level of reserves to help support economic shocks, as well as to finance its operations. 7. Dollarization will eliminate seigniorage earnings, which is the income of the central bank from issuing the local currency minus the cost of printing banknotes and coins. This could lead the reduced income to the government. 2  BIS Review 164/2009  4. View on dollarization  Particularly the reduction in banking costs and the perspective of low interest rates could make dollarization appear very attractive. However, it seems to me that in a stable economic environment with strong fundamentals, a reliable macroeconomic policy, and a credible central bank, the advantages of dollarization are marginal. The more so when there is a good track record of maintaining a fixed and stable exchange rate with the US dollar. The goal of maintaining a fixed exchange rate is to be able to benefit from the trade advantages of being anchored to the currency of the country with which there exist strong economical ties, while maintaining some degree of independence in terms of monetary policy. Furthermore, it cannot be denied that there is a political and social aspect to this.
Having one’s own central bank and issuing one’s own currency not only gives political status, it is often an important element of national identity. 5. The case of Aruba  Only a few months prior to Status Aparte in 1986, the Island Council of Aruba, after many studies and discussions, decided to institute its own central bank and issue its own currency, the Aruban florin, with the same nominal value as the Antillean guilder, and that is 1.79 florin to one US dollar. The prime reasons behind this decision were the perceived complexities within a monetary union with the Netherlands Antilles hen adopting the Antillean guilder and the loss of monetary independence in a fully dollarized economy. For those who are not fully familiar with these issues, I must point out that the decision of the Aruban authorities to peg the Aruban florin to the US dollar is a unilateral one, and is anchored in the Central Bank Ordinance, the Ordinance governing foreign exchange transactions, and the State Decree value of the florin. In other words, it takes a political decision to change the exchange rate of the Aruban florin vis-à-vis the US dollar. Just as the Netherlands Antilles, Aruba has been able to maintain this peg, meaning that we have experienced an unchanged rate of exchange with the US dollar since 1971.