Dollarization

Full official dollarization eliminates the ability to devalue a national currency and can eliminate currency risk relative to the adopted foreign currency. In return, the country relinquishes independent monetary issuance and policy, and ordinarily forgoes domestic-currency seigniorage revenue.

Dollarized economies may face special financial-stability and crisis-management constraints because the domestic authorities cannot freely create the adopted foreign currency; lender-of-last-resort arrangements therefore require particular attention.

Ecuador announced dollarization on January 9, 2000; the U.S. dollar replaced the sucre as legal tender, while the Central Bank of Ecuador retained authority to issue fractional coins and exchanged sucres at a fixed rate, with the conversion process ending in June 2001.