Ecuador's former president tried to kill dollarization. Here's what that means for Venezuela, Argentina and the Rest of Latin America

By Steve H. Hanke and Francisco J. Zalles

October 13, 2026

Steve H. Hanke is a senior contributing columnist at Fortune and a professor of Applied Economics at The Johns Hopkins University. From 1995 to 1996, he served as economic advisor to President Rafael Caldera. He is currently a Special Advisor on Economic, Monetary, and Energy Affairs in the office of Congressman Antonio Ecarri in the National Assembly of Venezuela. Francisco J. Zalles is an Ecuadorian economist and professor at Universidad de las Hespérides (Spain). Zalles and Hanke advised Ecuador's Minister of Finance and Economy, Carlos Julio Emanuel, during the introduction of dollarization. They are editors of a new book, La Dolarización en Ecuador: El Triunfo del Orden Espontáneo (2026).

Ecuador's journey with dollarization has implications that extend well beyond its borders, resonating throughout Latin America. The contemplation of replacing local currencies with the U.S. dollar is increasingly prevalent in the region and has gained traction in discussions in Washington, D.C., where enhancing the dollar's role is back in focus.

As a case study, Ecuador serves as a critical natural experiment in assessing the robustness of a dollarized system amid opposition from a government. Rafael Correa, an economist with a PhD from the University of Illinois, was an outspoken critic of dollarization prior to its implementation in Ecuador and during his presidency. Despite leading the country for a decade, he was unable to dismantle the dollarized framework due to its positive performance and the strong public endorsement it received.

The Collapse

In 1999, Ecuador's sucre experienced a disastrous decline. At the close of 1998, the exchange rate stood at 6,825 sucres per U.S. dollar. By the end of 1999, it had plummeted to 20,243 sucres to the dollar, representing a loss of two-thirds of its value within a year. This decline continued into the early days of 2000, with the sucre shedding another 27.7% in the first week, reaching an all-time low of 28,000 sucres for one dollar.

Confronted with a rapidly depreciating currency, a banking crisis, and a faltering economy, President Jamil Mahuad announced on January 9, 2000, the decision to adopt the dollar at an exchange rate of 25,000 sucres per dollar. This pivotal move was encouraged by President Bill Clinton and Treasury Secretary Lawrence Summers.

The implementation of dollarization yielded positive outcomes. Inflation decreased significantly, deposits returned to financial institutions, and the economy shifted from recession to recovery, driven largely by a surge in exports. With a safeguard against currency crises in place, Ecuador established a foundation of stability—an essential characteristic for any economic system.

A Durable Regime

Currently, dollarization enjoys approximately 90% public approval. It stands as the longest-serving currency regime in Ecuador since its independence in May 1830 and has outlasted every constitution. Its resilience is further underscored by the fact that it withstood the tenure of Correa, who served from January 2007 to May 2017.

Prior to his entry into politics, Correa authored papers criticizing dollarization and proposed a strategy for its reversal. During his presidency, he referred to dollarization as "an immense error" and "monetary suicide." However, he recognized that overtly attempting to reverse dollarization could lead to bank runs, economic turmoil, and potential impeachment. Consequently, Correa continually reassured the electorate that reversing dollarization would be disastrous and was not part of his plans.

What Correa Did Instead

Nevertheless, Correa's actions during his administration reflected an opposing agenda. In his inaugural year, he dismantled a crucial component of dollarization—a fiscal anchor. Ecuador had established an oil reserve fund, which, alongside dollarization, facilitated the country's first series of fiscal surpluses since the onset of oil extraction. This fund was abolished under Correa's direction.

That same year, Correa initiated a range of economic policies that contradicted the principles of dollarization. He restricted foreign investment, an approach inconsistent with the tenets of a dollarized economy. Additionally, he defaulted selectively on Ecuador's foreign debt despite record oil revenues, imposed an exit tax on dollar remittances, and significantly increased import tariffs. To exert control over the banking sector, he mandated that private banks repatriate 45% of their available liquidity and deposit it at the central bank.

Moreover, Correa introduced a central bank electronic money initiative, marketed as a financial inclusion tool enabling mobile payments for citizens. However, since this system allowed the central bank to issue balances rather than private banks, there was potential for government use of these unsecured "ecuadollars" to settle debts. Public reluctance led to the program's discontinuation.

Most critically, the central bank began directly lending to the treasury, permitting Correa to produce unbacked currency. The extent of central bank financing reached roughly 10% of GDP, according to the IMF, with notable lending spikes between 2009 and 2014. Such practices raised significant legal concerns and were at odds with the foundational principles of a dollarized economy.

The Legacy

Correa has been convicted of bribery in the Sobornos case and sentenced to eight years in prison, now residing in Belgium beyond the reach of that judgment. His influence remains palpable. The true advantages of dollarization remain unrealized in Ecuador, as the central bank continues to determine interest rates and direct lending to favored sectors. Additionally, existing capital controls hinder Ecuador's access to the expansive international dollar liquidity pool.

For nations contemplating dollarization, Ecuador's experience sends a clear message: the dollar effectively fulfills its role. Over a span of 26 years, Ecuador has successfully evaded the common pitfalls of currency crises, sustaining commendable economic growth, maintaining low inflation, and witnessing significant export increases.