Revisiting the Beginnings of the Central Banking in Ecuador

On July 9th, 1925, a coup d’état overthrew the Ecuadorian government of the president Gonzalo S. Córdova, which was replaced by a Supreme Military Junta. After a year, the Supreme Military Junta chose the new president, Dr. Isidro Ayora, who ruled until 1931 and who founded the Central Bank of Ecuador, after the recommendation of the Kemmerer Mission. Some historians have analyzed profoundly this event in the Ecuadorian history, known as the Revolución Juliana, through two perspectives. The first, the patriotic spirit of the military forces that was needed to close a period were private banks had the control of the political power and, in turn, returned the power to the people. This perspective emphasizes the economic critical situation in Ecuador as the main source of a political and social instability. The second, a less popular view, which understands the coup d’état, and the foundation of the Central Bank of Ecuador, as the result of the struggles between bankers’ due to the controversies around currency emissions. This point of view underlines the strong influence of Luis Napoleón Dillon, a private banker from Quito, in the military forces that organized the coup d’état. This paper has three main objectives. First, to review the arguments behind the two main readings of the Revolución Juliana, are they complementary or are they opposed to each other? Was Ecuador living an economic crisis that justified the arguments behind the revolution? Was Ecuadorian economy an isolated case or was part of a trend in the region? Second, to build a historical context to understand the coup d’état, the creation of the Central Bank of Ecuador and the influence of the Kemmerer Mission in the construction of the new financial system. Third, to build a comprehensive economic background of the country, using the main macroeconomic statistics available for these years.