Such a radical move would have multiple implications, some very positive ones but some negative ones that the embattled Ecuadorian president may not yet have considered. The real question is whether or not Ecuador is ready for such a change.

If the crisis was brought on by a weak banking system, then obviously a change to the dollar must first wait for a sound monetary system, both in the private banking sector and in the Nation's fiscal policies.

The dollarization would put an immediate end to the speculation that has ruined the nation. But such speculation is the result of excess liquidity in the banking sector, liquidity that has been generated by bogus deposits and linked loans. It must first be brought under control, by soaking it up into Sucre denominated Ecuadorian Treasury Notes.

The private banks must then be brought in line with international regulations, by means of a complete bank software conversion to ISO standards. Of what use is it to convert the currency, if the banks do not conform to global banking best practices, where obsolete bank software has allowed invalid deposits and other such anomalies to occur. The plumbing is the problem, it will hold no water, no matter what kind of water.

It is the private banking system that has run amok and ruined the economy, it must first be reformed and brought into compliance with international standards. Of what use is it to change the records, if the record keeping remains the same, a system without adequate audits or controls.

However, the idea of using the US Dollar as a true international currency is an excellent one. It eliminates the currency speculation that has ruined a number of otherwise sound economies.

The US economy relies on a self defining currency for its very survival, and for it's continued expansion. Why else would a nation that exports mostly refuse for others to recycle, and runs up a gigantic current accounts deficit, continue to enjoy such prosperity? It is the result of having no competition against it's own currency, by the self defining nature of the US Dollar, which has lead to an influx of foreign wealth.

One can empathize with the Ecuadorian president for trying to latch on to such a bonanza. In one radical move, he would not only eliminate the currency speculators, but also bring unbridled prosperity to his nation.

The Ecuadorian Central Bank could continue to be in charge of monetary policy, by transforming itself into an image of the Federal Reserve Bank. All Fed transactions involve US Treasury notes that are placed in the global open market, where the funds obtained by the Fed or generated by it influence the liquidity in the US economy.

If Ecuador can in turn sell its own US Dollar denominated Treasury Notes on the global open market, it would have the same control over it's monetary policy that the US government does, that is by means of a private Central Bank like the Fed. What is imperative is that the Ecuadorian Dollar Treasury Notes be redeemable at value when they come due.

The Ecuadorian national treasure must serve as collateral for the notes, a default would be a disaster. The bottom line is this: is Ecuador in the position to guarantee such Notes, what is the level of risk involved, and therefore what is the current discount. Such a move must not be done when the ship is in peril, but rather when a steady trade wind blows.

The dark side to tihs dollarization would of be the influx of foreign capital to Ecuador. Far from being desirable, the influx of capital would rapidly buy up all wealth in Ecuador, leaving their nationals as tenants in their own country. If multi-billion dollar deals can be generated by the New York financial markets, there would be no impediment to foreigners buying up anything of worth in Ecuador, given the opportunity to do so.

Dollarization is a radical way to eliminate the main cause of World Poverty, and an expedient way to solve urgent economic problems. However, one would hesitate to recommend such a move for Ecuador at this time, before it is ready.