The Limits to Dollarization in Ecuador: Lessons from Argentina

Matias Vernengo, Mathew Bradbury

Abstract


The paper draws lessons from the failed Argentine experience with convertibility to highlight the dangers of dollarization in Ecuador. Argentinas currency peg to the US dollar was successful in reducing inflation but given the overvalued real exchange rate, created burgeoning twin deficits and a chronic dependency on foreign capital. Ecuador too suffers from chronic current account imbalance. In contrast to Argentina, Ecuador seems to be relying on remittance income to close its external financing gap. Though perhaps this model is less unstable than that of relying on foreign capital it is no more sustainable. The paper closes with a realistic critique of thisdevelopment strategy.

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DOI: https://doi.org/10.5195/jwsr.2011.403

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Copyright (c) 2015 Matias Vernengo, Mathew Bradbury

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