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Rapidly Rising Dollarization And Numerous Related Financial Crises In Recent Years Have Heightened The Need For Policy Action. This Paper Contributes To The Policy Debate By Presenting A Common Analytic Framework That Examines The Roots Of De Facto Financial Dollarization Under Different Economic Environments And Analyzes Its Interplay With Monetary And Prudential Policies. In Addition To Providing A Systematic Analysis Of The Existence, Stability, And Multiplicity Of Dollarization Equilibria, The Paper Makes A Few Novel Contributions. In Particular, It Stresses The Key Role Played By Monetary Policy Endogeneity And Identifies The Underlying Determinants Of The Peso Premium That Are Responsible For Inducing A Preference For The Dollar In Financial Transactions. Contents; I. Introduction; Ii. The Model; Iii. The Risk Aversion Paradigm; Iv. Credit Risk; V. Alternative Paradigms; Vi. De-dollarization; Vii. Conclusions; I. Financial Dollarization Equilibria; Ii. Default Equilibria And Monetary Credibility; Iii. Moral Hazard Equilibria; References Alain Ize. September 2005. This Paper Was Presented At The Conference On The Policy Implications Of De Facto Dollarization, Held In Lima, Peru, During April 21-22, 2005. Includes Bibliographical References (p. 29). English