The Amero

Ecuador defaulted on its debt today. Or maybe yesterday, I don't know. For those existentialists out there this is another example that makes you question the very raison d'être of fiat money. From the FT:

Alberto Bernal, Head of emerging market macroeconomic Strategy at Bulltick Capital Markets, said the move was a prelude to a decision to exit dollarisation.

”Dollarisation is popular in Ecuador. Yet president Correa does not believe in dollarisation, and he needs further tools to pump the economy, because he will never receive the support of the private sector to generate employment,” Mr Bernal said. ”We think that a 60 per cent to 70 per cent devaluation is likely to take place at some point in the near future, unless oil prices recover fast.”

Ecuador abandoned the sucre for the dollar in 2000 after the collapse of its banking sector, which effectively leaves Mr Correa with no monetary policy of his own.

This passage makes one realize what the fundamental error is -- the government shouldn't have any monetary policy of its own. In fact, if there's one thing that the government should never ever be allowed to have, it's a monetary policy. If there's one thing you should never let the government do, it's control the supply of money. It always has and always will end in tears. Allowing the government to print money gives it an extraordinary control over society that is never apparent until it's too late.