The U.S. dollar in Ecuador: Despite some election claims, it is secure for the foreseeable future

Jul 29, 2023 | 0 comments

By David Morrill and Deke Castleman

What do expats — especially those from the U.S. — think about using the U.S. dollar in Ecuador?

Not much, frankly, although it’s hard to deny that it makes life easier. We don’t have to worry about exchange rates or go through the hassle of trading dollars for a local currency like expats in other countries do. In

addition, calculating costs and comparing them to prices in the U.S., if we’re so inclined, is relatively easy.

By the same token, the use of the U.S. dollar affords the locals one less opportunity to engage in so-called “gringo pricing”: It’s more difficult to short-change customers who aren’t familiar with the local currency.

Although all Ecuadorian presidents have pledged to support the dollar since it was adopted in 2000, there are a handful of politicians and economist who say the country should have its own currency. They claim the dollar restricts the country’s financial options and that it’s an insult to national pride for its money to bear the likenesses of foreign presidents.

In the current cross-death election campaign, some opponents of the Citizens Revolution claim a Correista victory would mean the end of dollarization. The CR candidates deny it, however, pointing out that such a move would amount to political suicide.

One option that has been discussed off and on in recent years is the adoption of a regional Latin American currency, similar to the Euro in Europe. Promoted primarily by leaders of countries with failing economies, the idea has not gained traction.

In Ecuador, the dollar is here to stay for the foreseeable future. Twenty-three years ago, it rescued Ecuador from inflation rates that approached 100 percent and provided stability following a financial melt-down. You would be hard-pressed to find Ecuadorians today who want to return to the sucre — a recent poll showed 90% support for the dollar — which remains a staple only in antique stores and curiosity shoppes.

The dollar imposes financial discipline that is sorely lacking in many other Latin American countries — Venezuela and Argentina come readily to mind. Because Ecuador can’t print its own money, it can’t manipulate its money supply. The dollar also means that financial policies of the central government have less effect on the day-to-day lives of Ecuadorians — and of expats. Ecuador’s Central Bank can’t make any of the fiat-currency moves available to most other countries, which often lead to disastrous results.

Former president Rafael Correa had it right when he referred to the dollar as “Ecuador’s financial straitjacket” but, as it has turned out, it is a straitjacket the country needed.

All paper money, of course, is a convenient fiction, smoke and mirrors based on a shared hallucination of value. Given the daunting array of crises Ecuador faces, abandoning the dollar is far down the country’s “to do” list and probably will be for years to come. After all, some hallucinations are better than others.

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