A look at why dollarization has been good for Ecuador

Lawrence H. White wrote…In the late 1990s, as the Banco Central de Ecuador rapidly expanded the quantity of its currency–the sucre–prices denominated in sucres soared into hyperinflation. In response, Ecuadorians spontaneously adopted the U.S. dollar as a far safer savings vehicle, a far less chaotic pricing unit, and a far more reliable medium of exchange. Demand to hold sucres all but disappeared. With the collapse of the sucre, Ecuador’s government finally bowed to the market verdict and officially dollarized in January 2000. (I have previously written about these events here).

Dollarization has been a clear success. The Ecuadoran monetary and banking systems have been much more stable and trustworthy (real bank deposits have grown considerably) since dollarization, and the economy has enjoyed better growth despite being ruled by a political party that speaks and acts in anti-market tones. Because of its success, dollarization is enormously popular. Even President Rafael Correa, who has complained that dollarization is a “straitjacket” because it prevents expertly managed monetary policy (this is in fact its greatest virtue), promises not to undo dollarization…..The suggestion that dollarization is hurting Ecuador is based on a very myopic accounting of the costs and benefits. Read Article

A SERIOUS LOOK AT SOME OF THE CHALLENGES OF LIVING IN ECUADOR – READ THIS BOOK