Ecuador’s currency is the US dollar. As if to emphasise this point, they don’t use the dollar sign, they just write “USD” after every price. But it hasn’t always been so. Until 2000 Ecuador had its own currency, the sucre, and it only dollarised when its economy tanked.
Ecuador exports a lot of raw products, including most of the bananas that you buy in New Zealand. It also has oil. These products are vulnerable to price shocks and changing weather. In the 1990s oil prices bounced around and Ecuador suffered from the El Niño weather pattern, earthquakes, volcanoes and even a brief war with Peru. To try and keep its exports competitively priced (and reduce its internal debts) successive governments devalued its currency i.e. they managed the exchange rate so it was worth less.
Then in the late 1990s everything really went to pieces. President Abdala Bucaram, ironically self styled as El loco – the crazy – was investigated and dumped by congress for mental incompetence. His successors struggled with more crazy weather and the impacts of the Asian financial crisis. But they couldn’t manage:
- Ecuador couldn’t pay its foreign debt
- There was hyperinflation
- About 70% of financial institutions closed
- The economy contracted by about 7%
- Shit got real
Just like Venezuelans who are craving US dollars now, lots of Ecuadorians started ditching their own money and investing in overseas currency, especially USD. And it seemed unlikely that the government could stabilise the Ecuadorian currency. The President of the time was like “right, why don’t we just change to USD then? – that currency is much more stable”. And Ecuadorians were like, “you even talk about that and we’re going to riot”. They did. There there was a coup d’etat. But the next President still figured dollarisation was the way to go and over the next year the Ecuadorian currency was phased out and the greenback introduced. Ecuador does still produce its own coins, though, which are called centavos.
Nearly fifteen years on opinion is divided about the merits of this policy, although most agree it was probably necessary at the time. Not having its own currency means Ecuador loses the ability to control its own monetary policy and that’s problematic because Ecuador’s economy is fundamentally different to that of the US. The current President, Rafael Correa, who is a bit of a socialist firebrand, describes the currency change as a “technical error“. He’s keen on a South American currency instead, apparently.
There’s nothing like using US dollars to make it instantly obvious how much cheaper everything is than at home. Our taxi rides today have been between $2.50 and $4. An ill-fated bus ride (in the wrong direction) was at least only $0.25. Coming soon to a blog post near you, though, a jeremiad on the futility of the penny.