Do the Correistas want to de-dollarize Ecuador?

They say no, and they even say they want a constitutional amendment, but their senior leaders have talked about de-dollarization

A few days ago, the Correista movement (RC5) sought to promote a constitutional amendment to recognize the dollar as Ecuador's official currency.

Asked about the issue, their candidate, Luisa González, said that "It is absolutely false that we want to de-dollarize the country. That's part of the dirty campaign we've faced."

Daniel Noboa falsely claimed that vice-presidential candidate Diego Borja had written his thesis on de-dollarization. In fact, his thesis as an economist from PUCE, deals with "The role of economic policy in the accumulation of capital in Ecuador, period: 1979-1987", and was written in 1992, years before dollarization.

But it is true that Diego Borja published in August 2000 (that is, a few months after the beginning of this monetary regime), the article "An orderly way out of dollarization without dying in the attempt." The author proposed an "orderly way" to de-dollarize:

"In the first place, the parallel circulation of sucres and dollars at the current level: 25,000 sucres per dollar. Second, the restoration of all the functions that the Central Bank has by constitutional mandate. Thirdly, the establishment of an indexation trajectory (that relative prices are not altered) of all contracts... Fourthly, the establishment of an exchange control system".

Rafael Correa, for his part, published a similar academic study in 2004, "Dollarization and De-dollarization: More Elements for the Debate." In it, Correa recognizes "the serious risks and costs that an exit from dollarization would imply." He identifies "three fundamental and interrelated problems: a) creating demand for the new currency... b) avoiding a banking crisis due to a run on deposits, and c) avoiding a balance of payments crisis due to capital outflows". He proposes that the exit from dollarization "should be done gradually." In the previous issue of Iconos Magazine, other future (and past) leaders of Correismo (Alberto Acosta, Fander Falconí) debated the benefits of de-dollarization.

During the decade of the regime, Correa frequently and stridently attacked dollarization, claiming that it was a "bad decision," and sought to promote alternatives, such as the SUCRE (Unitary Regional Compensation System, which in practice essentially served to launder Ecuadorian dollars with Venezuela); a common South American currency, the "SUR" (which no other country had an interest in promoting); and an electronic currency issued by the Central Bank, which never managed to "create demand," as Correa's article suggested.

Andrés Arauz, who was previously a candidate for President and Vice President of Correismo, has indicated on at least three occasions his interest in de-dollarizing Ecuador, and introduce instead "ecuadollars", an electronic currency parallel to the dollar without any backing.

In an interview with the Argentine media outlet "Perfil," Arauz viscerally criticized dollarization, stating that in Ecuador "dollarization was imposed in violation of our Constitution."

In April 2020, Arauz wrote on his blog about "good de-dollarization." This supposed good de-dollarization "would seek more means of payment and increase in the cost of imports… What I proposed for Ecuador is the generation of electronic means of payment, a digital money for central banking," said Arauz.

That's where he falls into a fallacy. By generating an "electronic currency", which would be issued without backing, it would also cause the devaluation of such "electronic currency" and its loss of purchasing power. In addition, if the State were to use such "electronic currency" to pay salaries and suppliers, a bi-monetary system would quickly be imposed, in which the "electronic currency" would rapidly lose value against the dollar.

In the case of Zimbabwe, which introduced the Zimdollar in 2019, the exchange rate rose from $1 Zimdollar per USD in 2019, to 1,000 per USD in the official market and 2,000 per USD in the parallel market.

The question is why Correismo has publicly and repeatedly proposed de-dollarization, when dollarization has immense support in Ecuador (support of more than 80% according to polls).

The answer is that it imposes a straitjacket on public spending, since it does not allow inorganic monetary issuance (as has happened in Argentina and Venezuela, where inflation has exceeded triple digits). However, Correa's candidates have also talked about using the resources of international reserves (something that was already done during the Correa decade), which would also threaten dollarization.

Annual Inflation Rate of Ecuador, 1989-2025.