>>a mad dollarisation plan
>So what are your objections to dollarization?
>Doug
Mainly in the nature of "it's mad". It's a modern version of the Gold Standard, with all that implies. It will help to destroy what's left of the domestic banking system, as the domestic non-oil sector hasn't a hope in hell of getting enough hard currency to pay its debts. It will expose Ecuador to an excessive degree of monetary austerity -- they need to do something about 65% inflation, but this is a sledgehammer to crack a nut. And it sets in store problems for the future when the economy is stabilised, as these arrangements are a kind of Faustian bargain -- Ecuador can hardly de-dollarise when it's out of trouble.
Meanwhile, the dollarised economy gives any investors dozy enough to still have portfolio capital in Ecuador a free windfall, while maintaining open capital markets which aren't generating inflows. Even the IMF aren't recommending this one. (Although their regional director is now basically sanguine about it, so long as he gets his beloved fiscal program). It seems to be the result of an Argentine thinktank called Fundacion Mediterranea -- anyone know the form? I have a bit of knowledge of the Argentine currency board, and happen to know that the old chief economist there, Andrew Powell thought that the absolute key to such a system was constant and guaranteed access to foreign capital, which Ecuador definitely doesn't have.
My policy prescription for Ecuador would be something along the lines of the Malaysian solution -- capital controls, a fixed exchange rate and somewhat looser monetary policy. I might be tempted to suggest a dual currency regime a la South Africa.
Early news reports suggest that the protests didn't have the effect of immobilising Quito this time -- there were a few scuffles and some teargas fired, but nothing on a NorthWest American scale :-).
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