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Ecuador marks the 20th anniversary of the adoption of the U.S. dollar as its currency

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.

Former Ecuador president Jamil Mahuad

“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.”

18 thoughts on “Ecuador marks the 20th anniversary of the adoption of the U.S. dollar as its currency

  1. These days it’s all a matter of who owns the printing presses and the military to back it up. With the dollar we all sink together with the sucre you go down with the life boat.

    1. The realty is that transactions in life are not dependent on any scarcity monetary system When there is really no scarcity only organization to that effect in a monetary system

    2. I have no idea what you are trying to say, but then again, I doubt if you do either………the sucre (which doesn’t exist) is some sort of “life boat”????

      1. Over the years, there have been only two posters on this forum whose words were unintelligible and edgeof2 is one of them. The other was rhett oracle questioner and I am grateful that he finally gave up. Even those that responded to his inane posts were a mystery to me. Of course, your posts are usually inaccurate and full of all manner of errors, but at least they are understandable.

  2. No worries baba // Dollar is the lifeline the world will always cling to // what a great time to Travel // south america //

  3. The American dollar saved Ecuador from certain disaster. Long live the dollar, the strongest fiat currency in history. If you have a choice, however, diversify heavily with gold, silver and real estate.

    1. I wonder if Super Maxi will accept gold or silver bars, or even a deed to real estate, as payment for groceries. The same thing goes for Cryptocurrencies.

        1. Easy to say “one day”…. As if you have some kind of special knowledge, and can peer into the future. Kind of like the climate change projections, when those that will be proven wrong or right 50 years out, we’ll all be dead anyway.

          1. The dollar is the greatest fiat currency in world history. However, all paper money is destined to fail, especially when backed by nothing other than the good faith of governments.

            Gold is the only medium that has withstood the test of time and that has maintained its value. Five thousand years ago, one could purchase a fine suit of clothing for 1 ounce of gold. One can still do so today.

            It would be foolish to take gold or silver bars to Super Maxi. However, if one were to take fractional gold, one might have better luck, even today. Buy 1/2, 1/4, and 1/10th ounce American Gold Eagles. Doing so helps to insure one’s wealth and is a prudent move for diversifying away from paper. Even the mighty dollar is destined to fail.

            1. Sounds like you have attended a “class” or two…. or maybe even bought into one of those late night infomercials. Anyay, I was talking about the safety from contradiction, in prognosticating along the “one day” tenet (I don’t think you read close enough, probably because you were so eager to broadcast). I am always cautious when gold evangelists do their thing. Your advice is to “buy American Gold Eagles”, yet you don’t go to the next layer of veneer and explain how to actually do that, since there are numerous ways to buy and hold precious metals, and all have their advantages and disadvantages. If you ask someone who bought gold in September of 2011, they’ve gone 9 years without collecting interest or a dividend, or realizing any appreciation (they’ve actually lost about 16% of their investment, (before inflation is factored in)…while, had they invested in a broad market index, they’d be up by 200% (Don’t forget that gold prices are quoted in USD denominations, as is the DJIA, because the USD is the reserve currency of the world).

              Regardless, I do agree that all fiat currencies will eventually collapse, and there will be a period when exchangeable precious metals will be negotiable… but that will be a relatively brief period, just before canned consumables and ammunition eclipse precious metals in value. Let’s hope that you and I, and those we love, have enjoyed their time on earth and have peacefully moved on, before that happens.

          2. You will, but we’re not all as old as you.

            Of course that begs the question; why should we take your opinions on climate change seriously since you won’t be around to suffer the consequences anyway? For that matter, why do you even bother to opine on the subject so often and so vehemently? Listening to boomers scream that climate change is a hoax is like listening to an all male panel of Saudis argue over women’s rights.

  4. Ah, the perfect currency to pay 6 years of legal bills with. Use $$ to renew your passport, also, if they let you. Or maybe not.

  5. There were really TWO dollarizations. The first came months ahead of the official one. The oligarchy with privileged information were told about the coming change and were able to exchange their sucres at 7k to the dollar. That dried up the supply of dollars in the country such that when Mahuad finally announced the change, the price had gone up to 25k to the dollar.

    Mahuad fled to the United States weeks later to escape charges of corruption and receiving money from drug cartels. In return for his services to the empire he was granted political asylum (Moreno’s retirement plan) and was a paid “consultant” for various USAid funded think tanks. His policies resulted in 60% inflation and ruined the Ecuadorian economy, sending millions into exile in search of work, so naturally he was given a position as a lecturer on governance at Harvard University.

    His entire economic team ultimately fled into exile to escape charges of massive embezzlement, money laundering and links with Colombian drug cartels … all except his Superminister of Economy Guillermo Lasso (yeah, that’s the title they made up for the guy because he only had a high school diploma and, therefore, wasn’t legally qualified to be an actual Minister). He managed to make a hefty $30 million dollar profit on the meltdown because of his insider information, profits he immediately hid in Panama.

    1. And Lasso purchased over $23M in South Florida investment property during the down market, and will reap and enormous surplus when he sells, very soon! Not bad for a high school grad with inside info!

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