Architect of Ecuador’s dollarization sees a red flag with Correa’s pledge

mynextfone.co.uk reported….Ecuador’s Dollarization Architect Doubts Correa’s Pledge.
Ecuador President Rafael Correa, a critic of his nation’s use of the U.S. dollar as its official currency, is now creating a government-backed digital tender. One of the intellectual architects of the nation’s switch to the greenback 14 years ago sees a red flag.

With the country facing a record budget shortfall, a new currency may undermine confidence in the monetary system, said Steve Hanke, a professor of applied economics at Johns Hopkins University, who advised Ecuador on adopting the dollar in the late 1990s and early 2000s. His concerns were echoed by Ruth Arregui, a former general manager at the central bank, and the University of Georgia’s Myriam Quispe-Agnoli, who wrote about dollarization as an economist at the Federal Reserve Bank of Atlanta.

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While government officials say there’s no plan to replace the dollar as the official tender and the virtual currency will help expand mobile-banking services in rural areas, concern dollarization is at risk persists partly because of Correa’s repeated criticism that it curtails the government’s ability to manage the Andean economy. The limitations, which Correa has likened to boxing with one arm, mean Ecuador can’t print money to finance deficits that are draining dollars from the country.

“At best, it’ll just create noise and confusion in the system,” Hanke said by telephone from Baltimore. “Maybe there’s some chance that he could dislodge dollarization and on the off-chance that the thing actually worked and was more or less acceptable then he could ease the dollar out.”
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