Other countries that use U.S. currency

I've met some Ecuadorian immigrants recently who told me that back home in Ecuador they use US currency. Not too surprised, I assumed that they meant that it was another medium of exchange or investment, like gold or silver. I know that US dollars and Japanese Yen are valued somewhat by people in Korea.

However, they said that US currency IS the currency of their country: They told me that they use Kennedy halves and other US coins. I assume that means banknotes, too.

How does this happen? And what exactly are the incentives for Ecuador to "dollarize" their economy?

I'm looking this up on my own, but I thought that I'd get good responses here at CT, too.

 

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it is good for us. a big advantage that the united states has is that the USD is the world currency.

 

It probably means that Ecuador does not trust their own government. We had the same problem for the first few decades of our republic. Currency from Spain, Holland, Germany, France, Italy, and England was pervassive. It is nice that Equadorians trust us more than some other government. It makes you wonder about the folks in the US that think that we shouldn't trust ourself. Perhaps we should move them to Ecuador for a history lesson.

 

Believe it or not...for stability...at one time in the 90's the US dollar was used a lot in Russia. Now Zimbabwe, Panama, and many others do no matter how fast we print them. It is an advantage to having the World's Reserve currency (for the time being anyway).

 

I do not think that will ever change since the United States owns the World Bank.

 

I've traveled through Brazil, Uruguay, Argentina, and Chile, and many of the locals preferred US dollars. I learned to keep a lot of small bills on hand though, because I got change back in the local currency, and I had a hard time keeping track of the exchange rates. I suspect I got mildly duped a few times.

 

Let's see if I can remember anything from my college economics classes...The central banks of developing countries often have a lot of trouble with rampant inflation. One reason (among many) for that is that the young governments don't have a stable source of revenue and find it tempting to resort to seigniorage. Seigniorage is where the government uses the treasury as a primary revenue source, printing more money than is demanded by the populace. Inflation is a natural result of the excess flow of banknotes into the economy - Zimbabwe is a good example of a country where seigniorage caused massive inflation.

Dollarization, adopting the USD as a country's currency, allows the country to benefit from the U.S.'s monetary stability. It also has some benefits in terms of attracting foreign investment and in promoting trade with any other countries that are also on the dollar.

 

Not if we keep monetizing the debt...BRICs are already starting to trade in something that is not the US Dollar.

 

The US is the largest economy in the world. With the unrest in Ukraine, it is only helping the dollar in stability over the Euro. South America is a long way from becoming a stable currency. Brazil is a mess. You might be able to look at Canada or Australia, but the world will turn to he USD, at least for the next few years. Again, the US is the largest economy which is driving everything.

 

I agree we are the largest by far, 17 Trillion vs China's 12 Trillion if you believe it. The problem is, we are spending about 1 trillion more than we bring in. With interest at 1.3% we can afford to pay it. When interest gets back to 5% we are in trouble. If you follow how the government raises monies, you will note that most of the Treasuries are now purchased by the Federal Reserve (a private bank by the way). The Fed's balance sheet is now over 4 trillion dollars. Why do they have to buy that debt? Cause there is not enough market via the Chinese, Japanese, UK or whomever so we write ourselves checks backed by the taxpayer's future payments and ability to pay thereof. Therein lies the issue, if we (Joe Q Public) did what the government is doing, we would go to jail. The dollar index is just below 80 now, when/if it drops to 75 all bets are off and we are in deep doodoo. True it can climb to 85 just as easy but mathematics gets involved soon and that doesn't lie.

 

One of my neighbors have family in Ecuador who recently visited. They left with about $9000 IN SINGLES, and about $250 in kennedy halves. They said the same thing, that businesses, stores, etc, only accept US cash. And that ~$9250 was worth almost double because it was all in small bills.

 

It bothers all of us but lets get real. It is all relative. Most are worse than us. Thus, the dollar gets stronger. I'm making 8% on my money but only paying 2% in inflation. Is it really that bad?

 

Well if you think inflation is only 2% then they have you. In the 90's they changed how they calculate it now. It does not count energy and food. When is the last time you looked at prices for that? It is closer to 6% now. I will not bore you with the details but will suggest you look at shadowstats.com....it will be a real eye opener for you.



Notice that when they changed the calculation how it diverged. This was done to rob from mainly social security...

 

Other countries officially using the US Dollar include El Salvador, British Virgin Islands, Panama, East Timor, Turks & Caicos Islands, and as mentioned, Ecuador (since 2000). See "Currency Substitution" in Wikipedia.

 

Is not Zimbabwe still doing it? That must be unofficial now I guess.

 

A lot of Sackies were unloaded in Equador when they flopped over here. Apparently they love the Indian design. /// The USD is amazing. It's like the obnoxious drunk who won't fall down, won't pass out, won't shut up and let's off a continious cloud of funky gas.

 

But he still sometimes buys a round for the house, so let's not send him home just yet.

 

Don't think it's "official" in Zimbabwe. They use the South African Rand, the American Dollar, the Euro, and the Botswana Pula.

 

Ah that makes sense. I have one of the 100 trillion dollar notes. It is fun to how people. I do not think the dollar is dead at least not yet...but the government must start to be fiscally responsible and we know what the odds of that are. The markets will eventually decide for us.

 

I went to Ecuador last year. The dollar coins are more commonly used there than in the states.