Ecuador's 1999 banking crisis and the decision to dollarize

Ecuador entered 1998 already strained by falling oil prices, El Niño flooding damage, and a wave of bad loans, and by 1998 the central bank itself described the resulting banking crisis as one of the worst in the country's history. As banks failed, the Central Bank of Ecuador issued currency both to keep failing banks liquid and to fund the deposit guarantee agency's payouts to depositors, a response that flooded the economy with sucres and accelerated the very loss of confidence in the currency it was meant to prevent. The sucre, floating since mid-February 1999, lost about two-thirds of its dollar value over that year, and a bank holiday declared on March 8, 1999 froze most citizens' deposits, deepening the crisis rather than resolving it. Facing hyperinflation, deep recession, and collapsing public trust, the government announced on January 9, 2000 that Ecuador would abandon the sucre entirely and adopt the US dollar as its official currency, fixing the conversion at 25,000 sucres per dollar and physically withdrawing sucre notes between April and September 2000. The Central Bank of Ecuador's own account describes the financial system only fully recovering to pre-crisis deposit and loan levels by 2004.