DOLLARIZATION A situation where the citizens of a country officially or unoficially use a foreign country’s currency as legal tender for conducting transactions. The main reason for dollarization is because of greater stability in the value of the foreign currency over the domestic currency. The downside of dollarization is that the country gives up its right to influence its own monetary policy by adjusting the money supply. This term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency.

DOLLARIZATION BACKGROUND  Ecuador’s economy has historically depended on the production and export of raw products such as bananas, cacao, coffee and shrimp.  In the early 1970s, oil was discovered and quickly became Ecuador’s primary export.  This new wealth actually allowed Ecuador to finance new public services, infraestructure and the like, and in order to leverage this new refound wealth as much as possible the government (which after 1972, was under military control) also began to borrow heavily.  The 70s were good for Ecuador as the small Andean nation rapidly modernized, and in 1979 the country returned to democratic rule.

CAUSES AND EFFECTS 1970 Oil was discovered Ecuador began to borrow heavily Ecuador returned to democratic rule 1980s Oil market crashed The collapse of oil prices sent Ecuador’s economy into a crisis characterized by inflation mounting debt services and uncompetitive industries.

______________ Phenomenon Country’s infraestructure negative effects on ___________ Currency devaluation _______ designed to “inflate away” the country’s internal debt to make Ecuadorian_____________________ ______________. The country defaulted on its foreign debt. Banking sector collapsed. Ecuadorians rushed to bank to put their accounts into dollars

s Budgets crisis. Currency ____________. Wildy fluctuation on___________. Earthquakes, ___________, ____________,in early Brief border War with ___________ El Ninio ravaged Ecuador’s agricultural economy. Damaged parts of _____________________________ _____________________________ Oil prices ______ _______. Sucre _________________ Year 2000 Sucre was _________________________. New deals with international _________________. Sucre _____________ completely from circulation.

ADVANTAGES OF DOLLARIZATION Stabilized the overall economy. Allowed the nation as a whole to experience significant economic growth. Long term economic planning is easier under a stable currency. Foreing investors are attracted.

DISADVANTAGES OF DOLLARIZATION Ecuador can no longer make its own monetary decision. Ecuador is at a competitive disadvantage to its trading partners. It cannot make its goods cheaper in the worldwide market by devaluing its currency. Most population is illiterate which make counterfeiting easier. Dollarization does nothing for the massive internal and external debts caused by rampant spending, continued poltical instability, and debilitating corruption.

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SUCRE BILLS