Ecuador adopted the US dollar (USD) as its national currency in 2000 following a severe banking crisis that pushed annual inflation levels up to 50% in 1999 and nearly 100% in 2000. The USD replaced Ecuador’s former currency, the sucre, at an exchange rate of Su25,000 to US$1 and now serves as the country’s sole legal tender.
Few restrictions apply to international money transfers coming in or out of Ecuador - though outgoing transfers are taxed - and its dollarised economy has helped to restore investor confidence and facilitate money transfers denominated both in USD and in foreign currency. Ecuador’s adoption of the USD means that it does not have a distinct foreign exchange policy; the dollar floats freely, and individuals and companies can easily obtain forex for purposes of foreign trade or investment.
Ecuadorian authorities apply a tax on all outgoing forex transfers, including both current and capital account transactions. In January 2012, the tax rate was increased from 2% to 5% in an effort to discourage the transfer of capital abroad. Beyond this, there are no other significant barriers to the remittance of foreign investment capital; after taxes, companies are free to repatriate 100% of investment capital and net profits. However, inconsistencies in the country’s investment and tax regulation, legal context and economic terms can act as a deterrent to foreign investment.
There are no limits on the amount of hard currency that may be carried in or out of the country at a time.
Ecuador was rated the world’s favourite expat destination in terms of personal and professional satisfaction in a 2014 survey conducted by the expat networking site InterNations. The number of expats moving to Ecuador is modest compared to larger destinations such as Germany, the US and the UAE, but expats ranked Ecuador among the highest in terms of the ease of personal finance.
Ecuador is a particularly popular destination for retirees looking to relocate to a country with a high quality of life relative to the cost of living. According to the 2014 InterNations report, nearly 40% of all expats in the country are retirees. Its adoption of a major world currency, combined with its openness to foreign exchange inflows, makes Ecuador a popular destination for retirees to transfer funds from their pension.
The Central Bank of Ecuador (Banco Central del Ecuador, BCE) is the country’s primary monetary authority. Though it does not an independent exchange rate policy, the BCE monitors the health of the financial system and the monetary supply, maintains foreign exchange reserves, and ensures the smooth operation of payment systems.
A separate public entity, Ecuador’s Banking and Securities Supervisory Agency (Superintendencia de Bancos y Seguros del Ecuador, SBS), oversees the health of the financial system including banks, capital markets and insurance providers.
The adoption of the USD helped to stabilise the economy and return inflation to more sustainable levels. Annual consumer price inflation rose by an average of 4% per year between 2005-2013.
Foreign direct investment (FDI) in Ecuador plummeted at the depth of the banking crisis, resulting in net withdrawals of US$23m in 2000, but also stabilised with the USD. FDI inflows represented an average of 0.75% of GDP between 2005-2014, peaking at 1.2% of GDP (US$493m) in 2005 and 1.6% of GDP (US$1bn) in 2008. However, foreign capital inflows have failed to regain levels seen prior to the banking crisis, which ranged between 2% and 3% of GDP. Investors report that while there are few impediments to international money transfers and investment, FDI regulation can be opaque and inconsistent.
Ecuador’s monetary unit, the US dollar (USD, symbol $), is made up of 100 cents. Banknotes are issued in values of $1, $5, $10, $20, $50 and $100; coins are available in denominations of 1, 5, 10, 25 and 50 cents and $1.
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