Ecuador is adopting the dollar. If you could vote, how and why?
I didn’t know its parents had died. 
Not knowing the intricacies of foreign commerce, I assume this is good for Ecuador. I would guess that this was done to prevent their gov’t from flooding their economy with “worthless” paper currency, controlling inflation.
Judges 14:9 - So [Samson] scraped the honey into his hands and went on, eating as he went. When he came to his father and mother, he gave some to them and they ate it; but he did not tell them that he had scraped the honey out of the body of the lion.
I’m generally for dollarization, because I believe the dollar is far and away the best managed currency in the world, at least for the past 15 years or so. But then, I’m also a cultural Imperialist,and view just about anything that makes other countries more “American” a good thing.
Scott
PS And if THAT doesn’t start some Great Debate ™…
Well, Scott, you want debate? I’ll give you debate you worthless piece of Federalist expansionist SCUM!
Er, whatever.
As to Ecuador adopting the dollar, I’m all for it. Hey, we’re the best.
So, what was wrong with the, um, the Ecuadorio, or whatever currency unit they used to use? Hyperinflation? No dead presidents’ pictures to put on the bills and coins?
Presumably, Ecuador prefers to avoid the difficulties in maintaining the value of its currency against the dollar, and instead wants to take its chances on having all dollars leave the country because of a negative trade imbalance.
Economists who did better than I in college can now provide some true illumination.
First Ecuador, and then the world!
Muahahahaha
OK, manhattan’s very introductory guide to dollarization.
True dollarization (for other kinds, see below) is the least attractive way to dollarize in terms of keeping policy flexibility, but if the other options are not available, it’s worth it if the country can pull it off. In fact, it’s worth it to try to tie your currency to any more stable regime, especially if you are a net user of capital.
There are several ways to dollarize. The most straightforward is to actually use dollars. This is Ecuador’s solution. Panama has used the USD since it was formed, as has Liberia. A few little guys in the Pacific use dollars.
The next way is to create a currency board. Essentially, this is (usually) a division of a country’s central bank that is given the task of keeping the local currency stable in dollar terms, no matter the consequences for interest rates, unemployment or other macro considerations. Hong Kong and Argentina have currency boards.
Another way is simply to do it, without the formality of a currency board. For this, a country needs lots of dollar reserves and a constant stream of new dollars. China does this. Taiwan could if it wanted to, and Korea should have.
The neat part about “partial” dollarization is that in a pinch you can undo it. China made noises about this during the Asian financial crisis of ’98 and got lots of neat trade benefits to appease them. The downside is that in a pinch someone else can undo it. Ask Brazil, which used a variation of the currency board idea called the “floating peg” until they got walloped in the FOREX markets last year.
When a country fully dollarizes, it loses some domestic policy flexibility. Specifically, domestic interest rates will never be lower than US interest rates, no matter how much the economy needs to be stimulated by domestic lending. It also makes a country vulnerable to the whims of US foreign policy. We withheld dollars from Panama when we were mad at Noriega. Only after learning that countries with large drug smuggling operations have no trouble getting dollars did we take further action.
In exchange for these downsides, a country gains stability. Growth in excess of the worldwide average takes foreign capital. Heck, any growth at all takes capital, and a lot of countries have little of their own. By eliminating devaluation risk, foreign countries can focus international investors on the opportunities available in the country. Additionally, they are freed from having the George Soroses of the world second-guess every economic plan. It is also worth noting that most international debt is dollar-denominated, as is trade in most large commodities. Matching a country’s assets with the currency in which those assets trade is a Very Good Thing[sup]TM[/sup].
P.S. Ecuador’s dollarization scheme will not work. The country is in default on it’s loans, their recession is too deep and instability is too high. The country will run out of dollars by the end of the summer.
Livin’ on Tums, vitamin E and Rogaine
An additional thought. While many people posting to this thread are (sarcastically or not) excited about the prospect of the USD reigning supreme over the currencies of the world, Treasury and the Fed are a little worried about dollarization.
As I mentioned above, one of the primary reasons to dollarize is to try to gain some stability. That means that, all else being equal, dollarizers will be unstable countries. Ecuador is too small to matter, but if Brazil or another large economy dollarizes, instability there could create (less) instability here. Additionally, there could be pressure for US monetary policy to change to suit the emergency needs of a dollarized country. The official Fed policy currently is “No. Fuck Off.” But that could change if the consequences were sufficiently large.
Just something to think about.
An analysis, as of September 1999, of Argentina’s possible dollarization can be found on the site of the Fed. Reserve Board of San Francisco.
Oh, sure. You could take the easy way out and click on a link to read about the issue as seen by professionals. But you’d miss my witty turns of phrase, informative asides and bonus typos. Do you really want to do that?
::grumbling that I forgot the Fed wrote about this::
Livin’ on Tums, vitamin E and Rogaine
It’s ok, manhattan, I much preferred the interesting turns of phraseology.
The Fed is so damn dry and analytical, even if it is knowledgeable. 
Ecuador’s president, Jamil Mahuad, was forced out of office Friday by riots and the military, and replaced by the vice president. Dislike of the proposed dollarization policy played a role in the overthrow. CNN’s review is at: http://www.cnn.com/2000/WORLD/americas/01/22/ecuador.03/index.html