Last updated: March 16, 2019
Topic: FinanceInvesting
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Eight old ages have passed since Ecuador left behind its national currency to take over a foreign one ; an attempt to work out the worst economic crisis that the state had of all time faced. Since January 11th 2000, the “ Sucre ” was replaced with the U.S. dollar as Ecuador ‘s national currency. But why would a state put at hazard the loss of its ain pecuniary independency? Some economic experts have much to state about the topic, and have mixed positions about the consequences that dollarization have had in the state.

Like many other states in Latin America, Ecuador ‘s natural merchandises and exportations are cardinal for the well being of the state ‘s economic system. Ecuador ‘s chief natural stuffs and exports include: bananas, chocolate tree, java, runt, flowers and oil ( discovered in the 1970s ) . The 1998-1999 economic crisis had a enormous consequence on the state ‘s economic system. It had two primary factors: low monetary values in the oil market and El Nino conditions phenomenon that badly damaged most of the state ‘s agribusiness and production of export stuffs.

As a consequence, Ecuador ‘s economic system fell into hyperinflation, doing the state ‘s currency to worth even less in the universe market. Many people rushed to Bankss in order to empty out their histories and interchange them for a safer currency. ( At the clip 1 $ U.S. = 25.000 Sucres ) . The economic crisis grew when Bankss began to travel belly-up due to the sum of money that people all over the state were retreating. The authorities, led by former President Jamil Mahuad launched legion actions in efforts to salvage the economic system. The authorities took over the Bankss and froze histories ; doing it impossible for people to retreat their ain money.

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In a concluding effort to salvage the economic system, the Mahuad disposal proposed officially replacing the state ‘s currency with the U.S. dollar. This determination was non supported by the bulk of people in the state. It led to a big sum of protests throughout the full state. Ultimately, the president was forced out of office 10 yearss after proposal of altering the national currency. The Vice-President Gustavo Noboa took over the presidential term, but he supported Mahuad ‘s determination to alter the national currency.

Contemporary no Ecuadorian president has been able to finish a full 4-year term in office. Current President Rafael Correa has confirmed that he will keep dollarization in the state. This is because Ecuador ‘s new fundamental law grants the Presidnet increasing absolute powers. President Correa has stated that stoping dollarization at this point will hold helter-skelter effects in the state ‘s retrieving economic system, but seeks to travel back to a national currency.

Pablo Lucio Paredes, an economic analyst, agrees with the theory that dollarization has aided the recovery of Ecuador ‘s economic system. “ “ The bank was closed and was a effect of the ’99 crisis. Without a uncertainty, dollarization restrained the impairment of the assurance in the system, and the significant recovery of the Bankss has been an of import component in the stabilisation of the economic system. ” Paredes refers to the crisis in 1999 that led to several Bankss come ining bankruptcy. Since dollarization came to the state, people and concerns began reinvesting in Bankss, which helped to reconstruct steadiness to the economic system.

There are other analysts who hold resistances to Paredes. Analyst Eduardo Valencia, Director, Institute of Economic Investment, Catholic University of Ecuador holds a nationalist attack to the topic of dollarization. He believes that the state ‘s dependability in the dollar caused the crisis in the first topographic point. The key to reconstructing the state ‘s economic system lies in its production and exports. “ In a globalized universe, it is of import to garner the most of import parts of the economic experts of all history. And all of them have said that production should be made stronger. We must return to a theoretical account where production returns to be the protagonistaˆ¦.That is obtained by radically altering the development modelaˆ¦First, returning to an ain currency, and, 2nd, retrieving the importance of the Central Bank. Printing a currency with one-to-one para. ”

In my sentiment, Pablo Paredes ‘ designation of dollarization as the lead factor in stabilising Ecuador ‘s economic system is most suited. The dollar gave a new way to the state ; it turned the state ‘s economic accent from depending in its natural stuffs and exports, to an economic system where the disbursement power of Ecuadorians was transferred to imported goods and services. Even corporations and concerns were more willing to put in Ecuador after its use of U.S. dollars ; they created more occupations and attracted out-migration from neighbouring states.

I feel as though Eduardo Valencia ‘s political orientation of returning to a national currency, separate from dollarization, would be black. If Ecuador returns to its dependance of natural stuffs and exports, it would go vulnerable once more to all the factors that launched the state into the crisis of 1999.

It is true that by the state traveling this passage, there will be a part of concern that wo n’t profit and will oppose dollarization. The agricultural sector and little industries are unable compete in the market, since they made their net incomes in exporting the natural stuffs to under states. “ In merely three old ages, the part of the agricultural, cowss, forestry and fishing sectors of internal production fell from 10.6 per centum to 8.8 per centum. ”

Based on the thoughts put in this paper, it is clear that dollarization Ecuador has had diverse effects in different parts of Ecuador economic system. It has strengthened the state ‘s commercialism and drastically stabilized a hyper blow uping economic system. The cost of making so, it decreased the development of the bring forthing sector and exchanging the accent of exports and natural stuffs directed economic system to one where the investing of corporations and big concern leads the state to an economic system that depends on imports ; which consequences in lone few people profiting from the alteration, while others continue to hold the same jobs as before the dollarization came along.

Ecuador ‘s dollarization is merely another illustration on how globalisation has affected the 21th century. If a state ‘s ain currency has become overpoweringly hyperbolic due to jobs with its economic system, a drastic solution would be to exchange to a foreign currency that has more value in the universe market at the clip. Showing that the whole is interconnected no affair what currency a state uses. Furthermore the fact that eight old ages have passed since dollarization became legalized in Ecuador and the state economic system has merely recovered a little per centum, it is proof that there is no fast solution for a economic system that has being undergoing jobs throughout the old ages. I think that long term solution must be created to raise the state ‘s economic system, and this program needs to be aided by the creative activity of more dynamic markets between the importers and exporters sectors of the state and an insurance of political stableness in the state.