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In 2000, Ecuador did something few countries dare to do: it fired its own money. The sucre was in freefall, inflation was chewing through savings, and trust had left the chat. So, the government dollarized, swapping the local currency for the U.S. dollar wholesale. Prices calmed. Sanity returned. But a new problem appeared the morning after: when you use someone else’s money, you lose the printing press.
Life without a printing press is different. In the pre-dollarization world, Ecuador could expand money in a crisis. Post-switch, every dollar has to come from somewhere: exports, remittances, tourism, capital inflows. Scarcity becomes a daily constraint, not a policy toggle. And yet the economy still needs elasticity: loans to build businesses, mortgages to buy homes, cash to settle bills. Where does that flexibility come from if you can’t conjure more dollars?
From the oldest trick in modern finance: fractional reserves. Banks keep a slice of deposits on hand and lend the rest, recycling a fixed stock of dollars into a living, breathing payment system. No money printer, just disciplined liquidity management, credible rules, and constant attention to confidence. That, in one paragraph, is also what we do at The Fedz and our synthetic dollar $FUSD: if a whole country can run a stable system on someone else’s money using rules and transparency, why can’t crypto and even with better, automated guardrails?
A Bakery Buys an Oven: How “Dollar Loans” Actually Work
Every morning, the line at Pan de Quito coils past the door before sunrise. By eight o’clock, the old oven is wheezing like a bus climbing the Andes, and Lucía, the owner, has already decided today’s the day she asks the bank for help. Not for a bailout, for a bigger oven.
At the branch, the manager doesn’t talk theory. He asks for receipts, payroll, flour invoices, and rent. An underwriter peels through the ledger, squinting at margins and seasonality, the way bakers test dough with their fingertips. They tally collateral, listen to Lucía’s plan for expanding catering orders, and map the payback schedule to her morning cash flows. It’s not glamorous, but it’s how risk becomes a number.
Share Dialog
In 2000, Ecuador did something few countries dare to do: it fired its own money. The sucre was in freefall, inflation was chewing through savings, and trust had left the chat. So, the government dollarized, swapping the local currency for the U.S. dollar wholesale. Prices calmed. Sanity returned. But a new problem appeared the morning after: when you use someone else’s money, you lose the printing press.
Life without a printing press is different. In the pre-dollarization world, Ecuador could expand money in a crisis. Post-switch, every dollar has to come from somewhere: exports, remittances, tourism, capital inflows. Scarcity becomes a daily constraint, not a policy toggle. And yet the economy still needs elasticity: loans to build businesses, mortgages to buy homes, cash to settle bills. Where does that flexibility come from if you can’t conjure more dollars?
From the oldest trick in modern finance: fractional reserves. Banks keep a slice of deposits on hand and lend the rest, recycling a fixed stock of dollars into a living, breathing payment system. No money printer, just disciplined liquidity management, credible rules, and constant attention to confidence. That, in one paragraph, is also what we do at The Fedz and our synthetic dollar $FUSD: if a whole country can run a stable system on someone else’s money using rules and transparency, why can’t crypto and even with better, automated guardrails?
A Bakery Buys an Oven: How “Dollar Loans” Actually Work
Every morning, the line at Pan de Quito coils past the door before sunrise. By eight o’clock, the old oven is wheezing like a bus climbing the Andes, and Lucía, the owner, has already decided today’s the day she asks the bank for help. Not for a bailout, for a bigger oven.
At the branch, the manager doesn’t talk theory. He asks for receipts, payroll, flour invoices, and rent. An underwriter peels through the ledger, squinting at margins and seasonality, the way bakers test dough with their fingertips. They tally collateral, listen to Lucía’s plan for expanding catering orders, and map the payback schedule to her morning cash flows. It’s not glamorous, but it’s how risk becomes a number.
When the price conversation starts, there’s a frame around it that neither of them controls. Ecuador sets maximum loan rates by segment, so a small-business loan like Lucía’s has a ceiling before a quote is provided. The cap is there to prevent pricing from becoming predatory; the side effect is that banks become more selective about who qualifies. Lucía can sense it in the follow-up questions: a closer examination of her supplier contracts and a longer pause over her slow season.
Where will the bank find the dollars it lends her? From other people’s dollars, the deposits are sitting in checking and savings. Deposit insurance helps keep those savers calm, a quiet promise that their money is protected up to a clear limit. Because savers don’t bolt for safety, the bank doesn’t have to hoard cash under the mattress; it can recycle those deposits into Lucía’s oven.
If the credit window narrows, because the economy hiccups or lenders turn skittish, another door opens. Public and development banks step in with targeted lines and guarantees, topping up the system so viable shops aren’t starved for gear and growth. Lucía doesn’t see the interbank plumbing; she just notices the loan officer’s tone soften after a call to a second-tier program.
Approval arrives on a Friday. By Monday, the dollars jump from the bank to the oven supplier through the national payment rails. The Ecuador dollars leave Lucía’s lender, land with the vendor, pay the metalworker, cover a driver’s wages, and circle back as someone else’s deposit. The same dollars do more work because the pipes keep them moving, and the rules keep people from panicking.
That’s the quiet trick of a dollarized system: even without a printing press, credit grows when depositors feel safe and banks are willing to turn still water into current. Lucía gets her oven; the line gets shorter; the morning smells like fresh bolillos, and the dollars are exactly where they’ve always been, only busier.
Up on the top floor in Quito, the macro team’s job is strangely simple: watch the tank. In a dollarized country, there isn’t a money printer humming in the basement. There’s a fixed pool of U.S. dollars backing the whole show. So the economists don’t ask, “How do we create more?” They ask, “Do we have enough, today, tomorrow, and on a bad Thursday?”
Liquidity is their oxygen meter. When tourism is strong and remittances are fat, the needle sits comfortably in the green. When oil prices slide or global rates rise, the needle drifts toward yellow. They can’t conjure new oxygen; they can only make sure what’s already in the room is steady and shareable. That’s why they obsess over simple things - how predictable the rules feel, whether banks are calm, whether payments are boring (boring is good), and whether the public trusts that tomorrow will look like today.
What happens if the tank runs out of fuel? First, life just gets sticky. Banks slow new lending, businesses wait a little longer for approvals, and everyone counts to ten before making big decisions. If the anxiety stays quiet, the system exhales and keeps moving. But if a rumor gets loud, “there aren’t enough dollars”, people sprint for the exits. Not because they hate banks, but because no one wants to be last in line. That’s a bank run: a story about fear, not fundamentals, turning a tight situation into an empty tank.
But wait, what will happen if reserves vanish entirely?! The risk gets sharper: Ecuador doesn’t have its own currency, so there’s no “Ecuadorian dollar” to devalue, but an unofficial exchange rate can still appear between bank dollars (deposits) and cash dollars. In a dire crunch, people may value a $1 bank balance at less than $1 in bills, such as 50¢, 80¢, or 90¢ on the dollar, depending on panic and recovery expectations. If 1 Ecuador dollar stops equaling 1 USD, the peg breaks, and the whole architecture is at risk.
A dollar-pegged system like Ecuador’s is exceptional, but not unique; just over the horizon, Panama and El Salvador run their own no-printer playbooks with different plumbing and the same constraint.
The Panama Balboa: A Stablecoin from 1903
Touch down in Panama City, and the first thing you notice at the café register isn’t the skyline, it’s the sound. The cashier slides back your change, and the coins don’t say “United States.” They say Balboa. Prices are in dollars, cards settle in dollars, but the coins are Panamanian, and they’ve maintained a one-to-one exchange rate with the U.S. dollar for over a century. It’s the granddaddy of stablecoins, without blockchain, just a national habit and hard plumbing.
Panama took the printer-less idea to its logical extreme: there’s no central bank to speak of, no wizard behind the curtain. The settlement bank runs the clearinghouse, the banks keep their own parachutes packed, and there’s no nationwide deposit insurance to sing lullabies when nerves fray. The culture that grows around that setup is exactly what you’d expect: conservative balance sheets, a near-religious respect for liquidity, and crisis tools that look like pipe wrenches and valves rather than a big red bailout button. Boring? Intentionally.
Fly a short hop to San Salvador and you meet a cousin of the same idea. El Salvador is now famously known for Bitcoin adoption, but previously adopted the U.S. dollar in 2001 and kept a central bank in the room, just one that can’t print the money everyone uses. The everyday rhythm is familiar: rules and buffers do the heavy lifting, not a late-night money machine.
Panama and El Salvador solve the same puzzle with different toolkits. Panama bets on discipline: strong pipes, high waterlines, and banks that fractionally reserve USD. El Salvador mixes discipline with a safety net that says, “Small savers, you’re covered, now please don’t sprint.” Neither model promises heroics. Both take the sovereign unit of account out of their systems.
Which brings us back to Ecuador. Three countries, three styles of plumbing, one constraint: pegging to the dollar. When the money is someone else’s, you stabilize money by stabilizing behavior. You make rules that people can set their watches by. You keep buffers where everyone can see them. You make sure the payment system is so reliable it’s almost invisible. Do that, and the magic trick happens quietly: one coin equals one dollar today, tomorrow, and on the bad Thursdays too.
The Peg Without 1:1: Printing “Local Dollars,” the Ecuador Way
Here’s the twist most people miss: Ecuador does have a printer, it just isn’t at a mint printing a new unit of account. It sits behind every loan desk. When a bank approves credit, it creates new deposit money, let's call them “local dollars”, that spend, settle, and pay taxes exactly like cash. The green paper still comes from the U.S., but most money is keystrokes, not ink. That’s fractional reserve in action: the economy grows on book-entry dollars while holding only a slice of hard USD in the vault. And the peg holds because the rules, plumbing, and confidence make one deposit dollar feel reliably equal to one cash dollar.
This is the main lesson for us: you can keep a dollar peg without 1:1 USD liquidity backing every unit at every second. What you can’t do is wing it. A fractional system needs rational, stable rules so the machine runs smoothly on normal days and doesn’t shake itself apart on rough ones. Ecuador’s macro stewards aim for exactly that balance, enough elasticity to fund ovens, trucks, and payrolls; enough discipline that savers believe they can turn deposits into cash when it really matters. The art is letting credit breathe without letting the promise of $1 = $1 go fuzzy.
Translated to DeFi, the message is simple: yes, you have a printer; use it like a professional, not like a DJ. Expand supply only when liquidity buffers can carry it. Pace redemptions so exits are orderly, not a foot race. Keep pre-positioned depth where markets actually trade, not where you hope they will. And above all, make the rulebook visible. If users can see coverage, queues, and flows in real time, they don’t need to guess; guessing is how pegs drift.
You don’t need 1:1 or 150% collateral to be credible; you need predictability and rules that mitigate the risk. Clear issuance criteria, transparent buffers, and known redemption mechanics. Know your liquidity and liquidity behavior.
DeFi stables talk a lot about pegs, but we’ve mostly lived in a 1:1 or over-collateral world: fully backed, belt-and-suspenders stablecoins. What we haven’t really done, on-chain, is fractional reserve. That’s odd, because Latin America has been running printer-less, rules-heavy versions of it for more than a century. Panama’s balboa dates to 1903; Ecuador and El Salvador show the same playbook in modern form. The record isn’t theoretical, it’s lived: credible rules + visible buffers + reliable payment rails can keep “local dollars” equal to $1 through good years and ugly Thursdays alike.
The lesson for DeFi isn’t “print recklessly.” It’s the opposite: design the rules so printing serves the peg, not threatens it. Latin America proves that fractional reserve can be possible, stable, and worthwhile, freeing capital for real activity while keeping confidence intact. On-chain, we can take that same discipline and add what blockchains do best: automation, transparency, and fair-by-design exits. We can also implement traditional financial bank-run mitigation technology relatively easily. If we build the rails with the peg in mind, clear issuance criteria, pre-positioned liquidity, orderly redemptions, sequential access, and priority accounts experiments. Then a fractional model isn’t a gamble; it’s a system.
We don’t need to wait for permission from legacy finance to try it. We just need to bring a century of hard-won lessons into code and earn the $1.
When the price conversation starts, there’s a frame around it that neither of them controls. Ecuador sets maximum loan rates by segment, so a small-business loan like Lucía’s has a ceiling before a quote is provided. The cap is there to prevent pricing from becoming predatory; the side effect is that banks become more selective about who qualifies. Lucía can sense it in the follow-up questions: a closer examination of her supplier contracts and a longer pause over her slow season.
Where will the bank find the dollars it lends her? From other people’s dollars, the deposits are sitting in checking and savings. Deposit insurance helps keep those savers calm, a quiet promise that their money is protected up to a clear limit. Because savers don’t bolt for safety, the bank doesn’t have to hoard cash under the mattress; it can recycle those deposits into Lucía’s oven.
If the credit window narrows, because the economy hiccups or lenders turn skittish, another door opens. Public and development banks step in with targeted lines and guarantees, topping up the system so viable shops aren’t starved for gear and growth. Lucía doesn’t see the interbank plumbing; she just notices the loan officer’s tone soften after a call to a second-tier program.
Approval arrives on a Friday. By Monday, the dollars jump from the bank to the oven supplier through the national payment rails. The Ecuador dollars leave Lucía’s lender, land with the vendor, pay the metalworker, cover a driver’s wages, and circle back as someone else’s deposit. The same dollars do more work because the pipes keep them moving, and the rules keep people from panicking.
That’s the quiet trick of a dollarized system: even without a printing press, credit grows when depositors feel safe and banks are willing to turn still water into current. Lucía gets her oven; the line gets shorter; the morning smells like fresh bolillos, and the dollars are exactly where they’ve always been, only busier.
Up on the top floor in Quito, the macro team’s job is strangely simple: watch the tank. In a dollarized country, there isn’t a money printer humming in the basement. There’s a fixed pool of U.S. dollars backing the whole show. So the economists don’t ask, “How do we create more?” They ask, “Do we have enough, today, tomorrow, and on a bad Thursday?”
Liquidity is their oxygen meter. When tourism is strong and remittances are fat, the needle sits comfortably in the green. When oil prices slide or global rates rise, the needle drifts toward yellow. They can’t conjure new oxygen; they can only make sure what’s already in the room is steady and shareable. That’s why they obsess over simple things - how predictable the rules feel, whether banks are calm, whether payments are boring (boring is good), and whether the public trusts that tomorrow will look like today.
What happens if the tank runs out of fuel? First, life just gets sticky. Banks slow new lending, businesses wait a little longer for approvals, and everyone counts to ten before making big decisions. If the anxiety stays quiet, the system exhales and keeps moving. But if a rumor gets loud, “there aren’t enough dollars”, people sprint for the exits. Not because they hate banks, but because no one wants to be last in line. That’s a bank run: a story about fear, not fundamentals, turning a tight situation into an empty tank.
But wait, what will happen if reserves vanish entirely?! The risk gets sharper: Ecuador doesn’t have its own currency, so there’s no “Ecuadorian dollar” to devalue, but an unofficial exchange rate can still appear between bank dollars (deposits) and cash dollars. In a dire crunch, people may value a $1 bank balance at less than $1 in bills, such as 50¢, 80¢, or 90¢ on the dollar, depending on panic and recovery expectations. If 1 Ecuador dollar stops equaling 1 USD, the peg breaks, and the whole architecture is at risk.
A dollar-pegged system like Ecuador’s is exceptional, but not unique; just over the horizon, Panama and El Salvador run their own no-printer playbooks with different plumbing and the same constraint.
The Panama Balboa: A Stablecoin from 1903
Touch down in Panama City, and the first thing you notice at the café register isn’t the skyline, it’s the sound. The cashier slides back your change, and the coins don’t say “United States.” They say Balboa. Prices are in dollars, cards settle in dollars, but the coins are Panamanian, and they’ve maintained a one-to-one exchange rate with the U.S. dollar for over a century. It’s the granddaddy of stablecoins, without blockchain, just a national habit and hard plumbing.
Panama took the printer-less idea to its logical extreme: there’s no central bank to speak of, no wizard behind the curtain. The settlement bank runs the clearinghouse, the banks keep their own parachutes packed, and there’s no nationwide deposit insurance to sing lullabies when nerves fray. The culture that grows around that setup is exactly what you’d expect: conservative balance sheets, a near-religious respect for liquidity, and crisis tools that look like pipe wrenches and valves rather than a big red bailout button. Boring? Intentionally.
Fly a short hop to San Salvador and you meet a cousin of the same idea. El Salvador is now famously known for Bitcoin adoption, but previously adopted the U.S. dollar in 2001 and kept a central bank in the room, just one that can’t print the money everyone uses. The everyday rhythm is familiar: rules and buffers do the heavy lifting, not a late-night money machine.
Panama and El Salvador solve the same puzzle with different toolkits. Panama bets on discipline: strong pipes, high waterlines, and banks that fractionally reserve USD. El Salvador mixes discipline with a safety net that says, “Small savers, you’re covered, now please don’t sprint.” Neither model promises heroics. Both take the sovereign unit of account out of their systems.
Which brings us back to Ecuador. Three countries, three styles of plumbing, one constraint: pegging to the dollar. When the money is someone else’s, you stabilize money by stabilizing behavior. You make rules that people can set their watches by. You keep buffers where everyone can see them. You make sure the payment system is so reliable it’s almost invisible. Do that, and the magic trick happens quietly: one coin equals one dollar today, tomorrow, and on the bad Thursdays too.
The Peg Without 1:1: Printing “Local Dollars,” the Ecuador Way
Here’s the twist most people miss: Ecuador does have a printer, it just isn’t at a mint printing a new unit of account. It sits behind every loan desk. When a bank approves credit, it creates new deposit money, let's call them “local dollars”, that spend, settle, and pay taxes exactly like cash. The green paper still comes from the U.S., but most money is keystrokes, not ink. That’s fractional reserve in action: the economy grows on book-entry dollars while holding only a slice of hard USD in the vault. And the peg holds because the rules, plumbing, and confidence make one deposit dollar feel reliably equal to one cash dollar.
This is the main lesson for us: you can keep a dollar peg without 1:1 USD liquidity backing every unit at every second. What you can’t do is wing it. A fractional system needs rational, stable rules so the machine runs smoothly on normal days and doesn’t shake itself apart on rough ones. Ecuador’s macro stewards aim for exactly that balance, enough elasticity to fund ovens, trucks, and payrolls; enough discipline that savers believe they can turn deposits into cash when it really matters. The art is letting credit breathe without letting the promise of $1 = $1 go fuzzy.
Translated to DeFi, the message is simple: yes, you have a printer; use it like a professional, not like a DJ. Expand supply only when liquidity buffers can carry it. Pace redemptions so exits are orderly, not a foot race. Keep pre-positioned depth where markets actually trade, not where you hope they will. And above all, make the rulebook visible. If users can see coverage, queues, and flows in real time, they don’t need to guess; guessing is how pegs drift.
You don’t need 1:1 or 150% collateral to be credible; you need predictability and rules that mitigate the risk. Clear issuance criteria, transparent buffers, and known redemption mechanics. Know your liquidity and liquidity behavior.
DeFi stables talk a lot about pegs, but we’ve mostly lived in a 1:1 or over-collateral world: fully backed, belt-and-suspenders stablecoins. What we haven’t really done, on-chain, is fractional reserve. That’s odd, because Latin America has been running printer-less, rules-heavy versions of it for more than a century. Panama’s balboa dates to 1903; Ecuador and El Salvador show the same playbook in modern form. The record isn’t theoretical, it’s lived: credible rules + visible buffers + reliable payment rails can keep “local dollars” equal to $1 through good years and ugly Thursdays alike.
The lesson for DeFi isn’t “print recklessly.” It’s the opposite: design the rules so printing serves the peg, not threatens it. Latin America proves that fractional reserve can be possible, stable, and worthwhile, freeing capital for real activity while keeping confidence intact. On-chain, we can take that same discipline and add what blockchains do best: automation, transparency, and fair-by-design exits. We can also implement traditional financial bank-run mitigation technology relatively easily. If we build the rails with the peg in mind, clear issuance criteria, pre-positioned liquidity, orderly redemptions, sequential access, and priority accounts experiments. Then a fractional model isn’t a gamble; it’s a system.
We don’t need to wait for permission from legacy finance to try it. We just need to bring a century of hard-won lessons into code and earn the $1.
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