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How Dollarization Saved Ecuador's Economy

When Ecuador ditched its currency for the dollar in 2000, it deprived governments the possibility to overspend, and gave ordinary people control of their money.

Counting dollar bills in a market in downtown Quito, Ecuador
Counting dollar bills in a market in downtown Quito, Ecuador
Mauricio Ríos García


LA PAZ — This month marks 20 years since the most successful monetary policy in Ecuador's history: dollarization and the shutting down the Central Bank. While some still criticize the move, and the former president even tried to reverse it, the economic benefits of dollarization are clear. On this anniversary, it's worth looking more closely at what the move has meant for the country.

Dollarization in Ecuador, which officially took place on Jan. 9, 2000, has been the subject of myths and speculation. The same can be said for the role of the currency and the Central bank in the economy, the nature of inflation, or how exchange rates can affect exports and a country's competitive profile. These have been of relevance at least since the mercantilist system of the 15th and 16th centuries.

Dollarization's first and foremost success since imposed in January 2000, was to check inflation and the so-called "inflation-tax." That is effectively a tax that needs no parliamentary approval and would have allowed someone like President Rafael Correa, who wanted to recover the Sucre currency, to lay his hands on the savings of people forced to use the old currency.

Likewise as the analyst Gabriela Calderón has said, one of dollarization's biggest benefits was to eliminate any possibility of public finances affecting the banking and financial system. With a fiscal crisis equal to or worse than Argentina's today, Ecuador most likely would have had to devalue the Sucre countless times as a public financing mechanism. Dollarization makes it impossible for currency devaluation to slide toward a typical financial crisis.

Private investment would be even more costly with a highly volatile national currency.

Another myth is that dollarization has made Ecuador's productive structure more costly, yielding bad results in terms of competitiveness. Yet if reduced competitiveness were due to the exchange rate, Ecuador could not benefit from the current state of globalization as it does, without dollar-priced products. As in Bolivia, Ecuador's relatively low competitive profile is due to its rigid labor regime, taxes, highly protectionist trade policies, and a hyper-regulated and obsolete banking and financial system. Private investment in Ecuador would be even more costly with a highly volatile national currency.

Why was it practically impossible for Correa to renationalize the currency? Because in contrast with the Argentinian convertibility plan in the 1990s under President Carlos Menem, the dollars were not in the hands of politicians and tax-greedy governments, nor in the banking or financial system — but with ordinary people.

Fortunately, in the same way that it was difficult for countries like Greece and Italy to abandon the euro to recover the drachma or lira to liquidate their bloated debts and pay off deficits, so Ecuador and its politicians were unable to abandon the dollar in recent years. And just like in Bolivia, the biggest risk to the economy now would be to abandon a fixed exchange rate.

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Is Disney's "Wish" Spreading A Subtle Anti-Christian Message To Kids?

Disney's new movie "Wish" is being touted as a new children's blockbuster to celebrate the company's 100th anniversary. But some Christians may see the portrayal of the villain as God-like and turning wishes into prayers as the ultimate denial of the true message of Christmas.

photo of a kid running out of a church

For the Christmas holiday season?

Joseph Holmes

Christians have always had a love-hate relationship with Disney since I can remember. Growing up in the Christian culture of the 1990s and early 2000s, all the Christian parents I knew loved watching Disney movies with their kids – but have always had an uncomfortable relationship with some of its messages. It was due to the constant Disney tropes of “follow your heart philosophy” and “junior knows best” disdain for authority figures like parents that angered so many. Even so, most Christians felt the benefits had outweighed the costs.

That all seems to have changed as of late, with Disney being hit more and more by claims from conservatives (including Christian conservatives) that Disney is pushing more and more radical progressive social agendas, This has coincided with a steep drop at the box office for Disney.

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