Investigation | Dollarization Compared: Ecuador, El Salvador, Panama

Key Insights

• Ecuador, El Salvador, and Panama show that adopting the US dollar reduces inflationary cycles and restores trust in money. However, as economist Gabriela Calderón notes, “dollarization is not a panacea.” Its success depends on the broader institutional environment: fiscal discipline, regulatory quality, and property rights.

• Panama demonstrates how strong property rights, trade openness, and investment-friendly regulations can turn dollarization into long-term growth. Ecuador and El Salvador stabilized prices but failed to deepen financial markets or attract major investment due to protectionism, weak rule of law, overregulation, and regime uncertainty.

• With the cost of US dollars in lempiras rising more than 500 percent since 1990, Hondurans could benefit from using US dollars. Dollarization could anchor price stability, lower interest rates, and protect savings. However, without fiscal reforms, legal security, and stronger institutions, Honduras would forgo the dollar’s full potential. 

Ecuador, El Salvador, and Panama have already chosen official dollarization over their national currency. However, their paths and results have diverged sharply. 

This investigation examines how they got there, what happened next, and what they could have done better. For this purpose, this investigation includes insights from recent podcast episodes on dollarization with experts from Ecuador, El Salvador, Panama, and Argentina.