Ecuador Proves the Gold Standard and Free Banking

We are always told that the gold standard is crazy and caused the Great Depression and could never be reinstituted, or that letting people and banks choose the currency themselves is a recipe for economic disaster. That might come as a surprise to Ecuadorians and residents of dozens of other countries from Canada to Zimbabwe.

751px-American_CashIn 2000, Ecuadors currency was on its last rocks, and the government just gave up. It opted to endorse the US dollar and made it legal tender. Since then, Ecuador has done well for itself; it certainly has not done bad. The South American nation has proven a great market for the dollar coins that are less popular in the US. Ecuador produces its own coins that are the same sizes as US coins, which are also accepted. And they are not the only country to have done this. Panama does also, as do East Timor, El Salvador, some Caribbean and Pacific islands, and of course, Zimbabwe. Additional countries do the same with the Euro, the Australian dollar, and other currencies.

These countries have all enacted this into law. Indeed, the Central Bank of East Timor says on its website that the US dollar is the official currency. What is this, if nothing but a proxy gold standard. Instead of the shiny yellow metal, these countries use the most famous currency in the world. If they can do that, why cant we use gold? It clearly is not harming their economies. Sure, they have to control their spending and debt, but apparently they dont care. All of these countries have kept their debt ratios lower than the world average. Again, they are doing just fine.

One of the last times I was in Canada, I discovered I could use the US dollar there. A bookstore owner I talked to replied to my inquiry “Yea, but itll be on par.” The US and Canadian dollars were quite close at the time; they arent now. It was fine by me and it would save him a trip to the bank or exchange and both of us transaction fees. He was going to visit his daughter in Hawaii. I think asked if he would like to trade more, knowing that some businesses would not accept the US dollar (three of the four I asked did, and gave change in Canadian). He agreed and it was a mutually beneficial transaction. At the time I had recently became a libertarian and was amazed by this real life playout of our philosophy.

The Northland is not the only place that this can be done. Indeed, nearly three dozen countries have good acceptance of the dollar. And it is taken in a lot of major businesses in Europe and Asia, albeit often at a bad rate. And nary a problem occurs. Everyone is satisfied with the arrangement. What is this, if nothing but free banking? Free banking is legal in the vast majority of the world, but it is displaced by national economic policies and central banking. Clearly it works and people even prefer it sometimes. Why not give up on these foolish ideas of control and let people make their own choices?

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