Ecuador Dollarization

About Ecuador Dollarization

In January 2000, Ecuador abandoned its currency, the sucre, and adopted the US dollar. The decision was made during a severe economic crisis with inflation over 60 percent and a collapsing banking system. President Jamil Mahuad was overthrown in a coup shortly after announcing dollarization, but his successor Gustavo Noboa implemented it anyway. Dollarization stabilized prices and ended inflation, but Ecuador lost control of monetary policy. It could not devalue its currency during downturns or print money during crises. Dollarization has been controversial but has persisted for over 20 years. El Salvador followed Ecuadors example in 2001. The lesson is that dollarization can provide stability but at the cost of economic flexibility.