On the 23rd anniversary of Ecuador’s adoption of the U.S. dollar, almost everyone agrees it was a good move. “It imposed badly needed discipline on our economic system, ending years of instability,” says Central Bank director Guillermo Avellán. “It also increased the purchasing power of citizens and created conditions favorable to investment and growth.”
He pointed out the rate of inflation was approaching 90% in January 2000, when Ecuador abandoned the national currency, the sucre, and converted to the dollar.
“Our economic system was out of control in the last two decades of the last century,” says Avellán. “From 1980 to 2000, the average rate of inflation was 36% and this made planning difficult, requiring constant readjustments and revisions to budgets by government. For families, the uncertainty was brutal since they did not know from one week to the next how much money they would need to buy food and other supplies.”
In 1998 and 1999, a third of Ecuador’s banks collapsed, Avellán says. “This devastated thousands of families and sent many businesses into bankruptcy. Something drastic needed to happen that’s why [President Gustavo] Noboa adopted the dollar.”
Even occasional critics of dollarization concede that it benefited the country. Former president Rafael Correa often complained that use of the dollar put Ecuador in a “financial straight-jacket” but said the forced disciple was necessary. “There was no option at the time since the system was out of control due to years of mismanagement,” he said in a recent interview. “During my government, I suggested many times that we should return to a sovereign currency but this was not feasible then.”
University of Guayaquil economics professor Theo Rodas shares Correa’s desire for a return to a sovereign monetary system but says now is not the time. “Having our own currency is a point of pride and using the dollar symbolizes a failure of discipline,” he says. “When we look at our money today we see pictures of George Washington and Thomas Jefferson. I would much rather see Simon Bolivar, General Sucre and Eloy Alfaro but we would need a level of national self-control I am not sure we have.”
Rodas says the “financial straight-jacket” is often a heavy burden. “In times of crisis, the government needs the option of putting more money into circulation but it also needs to stop printing money when the crisis passes,” he says. “Look at the U.S. One of the reasons it did so well during the pandemic was that it injected billions of dollars into its system to help businesses and families weather the hard times. Ecuador does not have that option.”
Avellán points to Ecuador’s 2022 inflation rate as proof that the dollar continues to provide stability for the economy. “We complain that inflation was 3.7% last year, the highest in a decade, but compare that to the rest of the region and we did very well,” he says. “Inflation was 80% in Argentina and 11% in Brazil. Our neighbors, Colombia and Peru, had rates of almost 10%. On balance, we did very well.”