Ecuador and Dollarization

Examines the effect of dollarization on Ecuador’s economic stability.

Over the past several years, the country of Ecuador has had its economic problems burgeon into a crisis. This has resulted in the devaluation of its currency, the closing of many schools, a crisis in confidence by both Ecuadorans and people in many other countries, and substantial political upheaval as the government has repeatedly changed hands. The paper shows that the causes for the country’s economic failure are complex and interlinked. It examines one of the most important causes, the country’s exchange rate, as well as the relationship between the country’s economic situation and the dollarization of the economy.
“In devaluing the currency, the government acknowledged that the International Monetary Fund did not entirely approve. The power that the IMF has over many developing nations is substantial and will be examined below. Ecuadoran leaders have struggled for years to remedy the financial problems of their country, but have been unable to make substantial progress in large measure because of the nation’s dependent position in the world trade system.”