How to De-Dollarize

With this title, the well-known economist Walter Spurrier published his article on Aug. 12. Among other reflections, he commented that “Dollarization is not universally popular among economists because dollarization takes away from the Central Bank’s ability to issue and thus regulate the circulating medium and finance the government’s budget….”

Allow me to refute in part this assertion, mentioning that evidently, before putting into practice the adoption of the North American dollar, many economists were against the adoption of this foreign currency because the use of the dollar signified the imposition of a “straitjacket.” It diminished the mobility of the monetary authorities, not allowing them to issue paper money; they lost the sovereign right to mint money; they have stopped taking advantage of seigniorage revenue; they lost the authority to devalue the currency with the object of helping increase national exports, etc.

In one of the debates that we had at San Francisco University about the convenience or lack thereof of continuing with the United States’ monetary system, Rafael Correa Delgado and the undersigned, against two other colleagues of the same university, defended the exit of the dollar since in those years — this was in 2002. There was not sufficient currency to support the dollarization; the high prices for a barrel of oil did not exist, but began to increase at the end of 2003, producing enormous income for the Ecuadorian treasury and making possible the “lubrication” of the monetary system with the enormous influx of dollars. In addition, President Jamil Mahuad threw himself into adopting the dollar without having preliminary studies. “Days before, I had said that dollarizing the economy would be like throwing oneself into the ocean without knowing how to swim.”

The increase in prices for oil barrels supports dollarization. The economists who were against the use of a foreign currency had now changed their opinion, strengthened by the fact that the American currency had depreciated with respect to the currency of those countries that import our goods over several years, which had helped with the increase in our exports. However, I believe that the economist — now president — Rafael Correa never liked continuing with dollarization, but the touch of the benefits of this monetary system and the support of the Ecuadorian citizens had obligated him to continue in the same manner taken by former President Mahuad and continued by former President Gustavo Noboa Bejarano.

It is worth mentioning, making a comparison, that we happily did not have the same bad luck as Argentina, which adopted the Currency Board in 1990: 1 peso = 1 U.S. dollar. This method of payment increased in value enormously between that year and 2000; consequently, the peso increased its value and its products increased in price opposite their trading partners. Argentina found itself obligated to devalue its currency — 1 U.S. dollar = 4 pesos — and its system failed.