In January 2000, Ecuadorian president Jamil Mahaud announced that
his country would dollarize its economy, replacing the national
currency, the sucre, with the American dollar as full legal tender.
Meant to stabilize Ecuadors failing economy, the policy was
controversial, and now, two years later, the debate is heating updid
it work? It is a question of vast regional importance as other Latin
American countries consider trading in their reals, pesos, quetzals
and colones for the stability of the American greenback.
To assess dollarizations impact, two Emory College undergraduates
spent their winter break in the high Andean town of Quito, Ecuador.
They were given the opportunity through the Institute for Comparative
and International Studies International Scholars Program,
which funds undergraduates to create and conduct independent research
Sophomore Hugo Aparicio knew nothing about the economics of Ecuador
(his mothers native country) before he began the project.
But I did know that every time I went back to Ecuador to visit,
the coins I still had from my last visit would be useless,
he said. Theyd become too small.
What Aparicio was unwittingly experiencing was an economy in crisis.
Low market prices and the excessive rainwaters of El Niño
had crippled an economy fuelled by petroleum and nourished by agricultural
products such bananas and cacao. By 1999, the sucre was in freefall,
plunging from 5,000 to the dollar at the beginning of the year to
25,000 to the dollar by the end.
It was then that Mahaud decided to abandon the sinking sucre and
adopt the dollar, a strategy meant to inject confidence into the
Ecuadorian market. The dollar is seen as a sign of stability,
Emory College junior Alex Henderson said. It encourages foreign
While in Ecuador, Aparicio and Henderson interviewed economists
and officials from the Ministry of the Economy, the Central Bank,
UNICEF and the National Institute of the Child and Family to ascertain
whether the strategy had worked.
Macroeconomically, dollarization has been very successful
for Ecuador, Henderson said. Inflation fell from 90
percent in 2000 to 20 percent last year. Domestic investment increased
six times in the same period. But there have been significant downsides
to the policy as well. The social effects have been enormous. Between
70 and 80 percent of the Ecuadorian population are now living below
the poverty line, which is an increase of 40 percent since 1999.
What is largely unknown is whether the blame for this increase
in poverty lies with dollarization itself or the sharp devaluation
of the sucre that preceded it. Other economic issues in Ecuador
include endemic corruption, minimal industrialization and a large
Basically, anyone we talked to in the government and in the
private sector seemed to be for dollarizaion, Aparicio said,
but the economists and people on the social side had their
doubts, or at least made sure to stress that dollarization was not
the magic cure to Ecuadors problems.
Opponents of dollarization also voiced concerns over Ecuadors
loss of ability to print its own money, a side effect of the policy
that essentially ties the fate of Ecuadors currency to the
U.S. Federal Reserve. According to the students, these critics argued
that renunciation of monetary control was tantamount to renunciation
of Ecuadors national sovereignty.
Other Latin American countries considering adoption of the dollar
include Argentina, Costa Rica and Guatemala. Both students see this
trend as an effect of globalization.
In the future, we may end up seeing that there are only a
few strong currencies used worldwide, Aparicio said. And
while adoption of the euro by European nations is a widely publicized
event, the impending dollarization of Latin America isnt.
Aparicio and Henderson are assessing their research and will turn
the experience into a four-credit independent course under the Spanish
department. They hope to use the project to raise consciousness
in the Emory community about Latin American issues.