Twenty years ago this week, Ecuador abandoned its national currency, the sucre, and switched to the U.S. dollar. The change resulted from an economic crisis that saw the collapse of dozens of banks, high unemployment and an inflation rate approaching 100 percent.
“We had no choice but to make the transition,” former president Jamil Mahuad said in a CNN interview of Thursday. “We were in the middle of an economic disaster that was getting worse and changes had to be made. I have no regrets about ordering it.”
When the currency conversation was made on January 9, 2000, the sucre traded at 25,000 to the dollar, up from 11,000 a year earlier. “The economy of Ecuador was in a shambles and the dollar was the logical refuge,” Mahuad said. “Within months of the change, credibility and confidence returned to the economy and confidence in the currency remains strong today.”
In the weeks prior to the switch, the Central Bank had devalued the sucre five times in efforts to reduce the government deficit. Four days before dollarization, the government closed of the country’s surviving banks and froze the value of the scure.
According to some economists, wide-spread fraud preceded the change. “Many in the government and banking business knew about it in advance and prepared for it and some even made money in the international currency exchange markets,” said Juan Ramirez, a professor at San Francisco University in Quito. “Between the banking collapse and dollarization, many Ecuadorians lost their life savings.”
Following adoption of the dollar, the government launched a “Know your dollar” campaign in newspapers and on radio and television. “It was very confusing for many people, especially those with little education,” Ramirez said.
“In the markets, you saw many small vendors pricing all their goods at one dollar, even when those goods were worth a fraction of that, because they didn’t understand the coinage. This is one reason why it was two years before inflation dropped to the U.S. level.”
Also confusing was the process for exchanging sucres for dollars. It was more than a month after the official announcement before the National Congress passed the Law for Economic Transformation that provided details of the transition. Over the coming months, the dates for full currency conversion changed three times.
Once the transition was complete, public support for dollarization has remained strong. Although he called Ecuador’s use of the dollar an “economic straight jacket,” former president Rafael Correa conceded in a 2013 interview that he had no choice but to accept it. “There are two things I would be lynched for,” he said. “The first would be if I eliminated the subsidy for cooking gas. The second would be if I went back to the sucre.”