Ecuador Sucre

Ecuador Sucre ceased to be legal tender in September 2000 and became nonexchangeable in March 2001.


Ecuador Sucre

On January 2000 the Government said that the US dollar would be adopted as the new Ecuador currency.

In 2000, the Ecuadorian economy was on the verge of complete collapse with an insolvent banking system, political instability & public unrest and hyperinflation at its doorsteps.

Then President Jamil Mahuad in early January 2000 declared a state of emergency due to the collapse of the Ecuadorian economy.

Ecuador Sucre the national currency at that time, was imploding in value depreciating by 65% versus the US Dollar year over year.

Consequently, President Mahuad announced on January 9, 2000 that Ecuador will seek to replace their Ecuador currency with the US Dollar.

The decision to dollarize Ecuador's economy was viewed as quite popular by the Ecuadorian people who experienced a massive drop in their standard of living.

However, dollarization limits Ecuador government the ability to print money and to help shield itself from any external shocks to the economy.

Since that time, many can argue that the US Dollar to date has been a relative success for Ecuador with the return of stability and economical growth.

At present, Ecuador's economy is improving with the return of economic growth and lowering of inflation to only 5% year over year and a national total public debt which now stands at a respectable 51 percent of GDP from over 100 percent in 1999.

With the US Dollar the economy confidence has returned. The Central Bank of Ecuador has no ability to conduct monetary policy thus eliminating the option to inflate.

During the crash of the Ecuadorian banking system in 1999-2000 as the domestic economy and Ecuador Sucre currency went into free fall, up to 16 banks were closed or were intervened and accordingly taken over by the state.

This resulted in much of the banking system collapsing or 70 percent of the financial institutions becoming insolvent and many now still under state control.

During this time, the government freeze implemented a banking freeze on savings accounts as a run on savings accounts began in March 1999 and a freeze on demand deposits up to equivalent of $4,000 USD.

Further, banking holidays were implemented in attempt to maintain control and slow the capital flight of which 30 percent of the deposits were have estimated to leave the banking system offshore after the freeze was eliminated.

During 1998-99, the Ecuadorian Central Bank adjusted three times the trading band until finally the Ecuador Sucre was floated in February 1999.

Dollarization affected the different sectors of the economy to a great extent. This particularly holds true for the banking sector.

Prior to dollarization, many banks in Ecuador declared bankruptcy due to the fiscal crisis of 1999. Many banks had to face closure in the process.

Compensation was provided to several investors and most of the customers were paid back for losing their money.

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The US Dollar, had a marked effect on Ecuador currency. The banks now are stronger and have a larger investor base.

The rate of interest has dropped facilitating investment from clients.

The transition from Ecuador Sucre to the US Dollar was relatively easy as the financial system in Ecuador already had a high level of USD participation.

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