48. Why Dollarization Works in Ecuador - Francisco Zalles

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Francisco Zalles, Ecuadorian Economist and Professor gives us an in-depth account of Ecuador’s journey to dollarization. 

A series of unfortunate events…
The economic crisis of the late 1990s, marked by a banking collapse due to external shocks (El Niño triggered the underperformance of the banana industry), poor fiscal policies, and mismanagement by the Central Bank, paved the way for drastic monetary reform in Ecuador.

A good policy is a good policy
President Jamil Mahuad's sudden decision to dollarize in 2000, at a time of extreme political and economic instability, was a last-ditch effort to save his administration. Despite limited planning, and many efforts to undermine sound monetary governance, the policy gained immediate popularity and stabilized the economy by halting inflation and restoring confidence.

Dollarization means development
Francisco sees dollarization not only as a stabilization mechanism but as a tool for institutional reform. It anchors private property rights over money, minimizes political interference, and enhances productivity by reducing inflationary uncertainty.

There is no more democratic private property than money. And building institutions is a long-term process. Dollarization is a very fast and efficient way to introduce an inclusive institution. - Fancisco Zalles

The future
Francisco’s dream? The closure of the Central Bank of Ecuador. This would solidify the benefits of dollarization. He underscores its potential as a safeguard against populism and a driver of sustainable economic growth.