Ecuador

Ecuador supervises its financial system through the Superintendencia de Bancos and the Superintendencia de Compañías, Valores y Seguros. There is no domestic framework licensing retail leveraged forex, and residents use foreign brokers. The country's defining financial fact is its currency.

How dollarisation happened

In the late 1990s Ecuador suffered a banking crisis, a collapse of the sucre and inflation running into the tens of percent. In 2000 the country abandoned its own currency and adopted the US dollar, an emergency measure taken amid political crisis rather than a considered policy choice.

It worked in the narrow sense it was intended to. Inflation fell to US levels and has stayed there, and the arrangement has survived multiple governments including ones ideologically opposed to it — because the political cost of reversing it is prohibitive once people hold and price in dollars.

What it costs

Ecuador has no monetary policy. Interest rates are set by the Federal Reserve for US conditions. There is no devaluation available as an adjustment mechanism when export prices fall, so the adjustment falls on wages, employment and government spending instead. And there is no lender of last resort in the currency the banking system uses.

For a currency trader this is a clean illustration of what an exchange-rate regime actually determines. When Ecuador's oil revenues fall, the pressure appears in fiscal and credit variables rather than in an exchange rate, because there is no exchange rate to move. The regime decides where a shock shows up, not whether it does.

Trading in practice

Dollarisation makes funding a dollar-denominated trading account free of conversion cost — a genuine practical advantage over neighbours. Beyond that, the licensing jurisdiction's rules and compensation scheme apply entirely, since no Ecuadorian authority supervises a foreign CFD broker.

Cautions

Ecuador has seen investment schemes promising fixed dollar returns, made persuasive by the currency's stability. A guaranteed monthly percentage is not a trading result. Verify any broker on its own regulator's register.