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The Limits to Dollarization in Ecuador: Lessons from Argentina

  • Mathew Bradbury
  • Matías Vernengo

The paper sheds light on the apparent success of dollarization in Ecuador. The experience of Argentina with convertibility is used to anchor the analysis. Two key factors are seen to play the most important role; first, the behavior of the real exchange rate and second, the source of external resources. The papers explains that exogenous determinants of the real exchange rate- productivity growth, the value of the dollar, commodity prices- have tended to behave very differently over the respective life spans of the Argentine and Ecuadorian monetary regimes. Trends in these exogenous variables have favored positive trends in the Ecuadorian current account. However, as the paper shows, the critical element informing the sustainability of the currency remains the source of external funds. Whereas in Argentina the IMF and international capital flows were central in propping up the flawed regime, the fate of Ecuadorian experiment relies heavily on a surprising factor, remittances. Reliance on remittance income is seen as a stop gap that cannot secure sustainability of the monetary system and implies longer run consequences for lost development potential.

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Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2008_12.

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Length: 14 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:uta:papers:2008_12
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  1. Taylor, Lance (ed.), 2006. "External Liberalization in Asia, Post-Socialist Europe, and Brazil," OUP Catalogue, Oxford University Press, number 9780195189322.
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