DESDOLARIZAR AL ECUADOR: COSTOS Y BENEFICIOS

Abstract

This paper covers the costs and benefits of dollarization in Ecuador, and presents a view of the alternatives and conditions that would allow for an orderly exit from this arrangement. While this topic has not been fully addressed in the economic literature to date, it has gained more relevance after the 2008 financial crisis, as exiting the Euro has been considered as a possible option to resolve the problems of the most affected peripheral Europe economies. This crisis brought to light the serious limitations that the lack of monetary policy creates in a country that needs to manage external shocks to its economy. Dollarization has produced confidence and stability in Ecuador, but the costs it entails make it prudent for local monetary authorities to consider potential exit strategies. As a result, this paper will discuss the most likely mechanisms to dedollarize, which could take the following three forms: a new regional currency, an electronic currency, or a new local currency. Nevertheless, any strides towards an exit from the current arrangement of full dollarization would need to come about in the context a broader, well-planned process with a national consensus that aims to reestablish public and investor trust, in the capacity and accountability of the authorities to once again manage the country’s monetary policy.