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Ecuador To Forge Ahead With State-Backed Digital Currency
First time accepted submitter jaeztheangel writes Ecuador's government has approved plans to start a new Digital Currency backed by the state. With defaults in recent history, and dwindling oil reserves it will be interesting to see how this decision turns out. From the article: "Congress last month approved legislation to start a digital currency for use alongside the U.S. dollar, the official tender in Ecuador. Once signed into law, the country will begin using the as-yet-unnamed currency as soon as October. A monetary authority will be established to regulate the money, which will be backed by 'liquid assets.'”
Should I be ashamed of my ignorance, or am I not alone in knowing that Ecuador uses the US dollar as it's primary currency?
http://i.cubeupload.com/T6cyLu.png
Because, of course, every last man, woman, and child in Ecuador has a PC or other digital currency device, right?
Ignoring the red herring of "digital", this is a bankrupt country trying to build a fiat currency that nobody is going to trust.
When the economic house of cards the US federal reserve built collapses their currency won't be tied to the US's monopoly money.
This is a great experiment that I hope the whole world is watching closely.
I hope the coins are produced somehow coupled to productive capacity. Something along the lines of open and observable ammeters on their main power plants could suffice. Of course, it'd have to be a bit more complicated than that, but it's the general idea I'm talking about.
It would really suck if they started pouring their already strained resources into bitcoin-esque server-farms lapping up megawatts guessing large numbers. Fucking waste.
'Ecuador To Forge ... Currency'
I see what you did there. :-)
Crumb's Corollary: Never bring a knife to a bun fight.
Okay, so they say it will be backed by "liquid assets" but unless those assets have a relatively stable value and the government doesn't fall into the temptation of debasing this new currency, it's going to be just another case fiat currency.
However, if it's backed by gold, US dollars, or some other reasonably-stable commodity AND there is no debasing, then we will have the digital equivalent of a "gold certificate," "US dollar reserve certificate," or "whatever-certificate" that people can trust. Well, the can trust it at least as much as they can trust the mathematical principles and as much as they can trust the government not to manipulate the blockchain or whatever the blockchain-equivalent will be for this new digital currency.
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Equ, or
Ecu (cough, cough).
Cost free eBook I read (by iBook/Kobo/Amazon/ObookO/Gutenberg etc.): "The Green Odyssey" by Philip Jose Farmer.
I didn't see anything in the article to indicate this currency would be anything like bitcoin, other than the title saying without any backing evidence "bitcoin-like money". It seems like any other currency except Ecuador avoids the expense of printing paper money or minting coins.
It would be extremely interesting if this is a move by Correa to put into practice Modern Monetary Theory. Correa is an economist by training, and clearly not a neo-liberal. If we see the Ecuador government switch to collecting taxes in the new currency and improving tax enforcement, I think it would be a good sign that is the direction. Assuming the neo-liberals and Washington Consensus types don't assassinate Correa before the transition is complete, it could be a fascinating case study in whether the MMT crowd gets it right. The trick will be figuring out how to get the dollar denominated sovereign debt eliminated by paying it off or conversion to the new currency or possibly fully repudiating it. The problem being that the only real way for Ecuador to get dollars is by having a trade surplus, that they have oil is advantageous. Getting people to stop holding dollars for savings, regular transactions, etc... would move those dollars from private hands to the government where they can use them to pay off dollar denominated bond holders and get out of the business of issuing debt in some other nations currency.
It'd be possible to implement a cryptocurrency without changing monetary policy. I'm sad the US hasn't taken the lead in this.
How can they not have PCs when their country, as a whole, is on /. ?
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A lot of people expected Zimbabwe to implode when their currency became worthless but the switched to the US dollar with little fuss. Funny how we were making such a big deal about how evil Zimbabwe was while Syria was ignored.
It looks to me as if it's just about printing less banknotes and using phones etc as electronic wallets. It's nothing like bitcoin. It's more like what some banks are starting to do with payment apps on phones, only instead of having backend mechanisms in the bank to make sure the dollars are there it's about having identifiers on the currency so it can be checked for legitimacy.
You may not have noticed, but since about 2000 a lot of people have been getting hand held telephones with plenty of processing power. If it can decode voice from a digital signal it's got the CPU power to be an electronic wallet. It's not iPhone territory. It's cheap Chinese Nokia knockoff from ten years ago territory - and such things seem to be everywhere on the planet. So probably a large chunk of the adult population of Ecuador has access to a potential "digital currency device" already.
We are already seeing banks push slowly towards using phones like credit cards. I heard of people buying fuel from the pump using their phones with an electronic payment system in Italy in 2001 FFS - and now it's 2014! It's about time a country started thinking about doing something like this.
Thanks for sharing.
I was intrigued enough to look up the reasons why Ecuador made the switch to USD.
For those who are interested, TLDR, in 1999 their economy tanked, their local currency sucre was losing value every day and the locals were converting the sucre they had to the more stable USD. The announcement only made official what was already happening anyway.
Sources:-
On A Roll: Ecuador's gamble with the U.S. Dollar
The effect of dollarization in Ecuador
Take for example, in Kenya the M-Pesa, the leading form of mobile payment system is widely adopted and mobile phones are used to pay for things such as public transport, school fees, rent, money transfers, to get loans etc. It is so successful that it was launched in other countries like Tanzania, Afghanistan and India.
And M-Pesa is private owned, not a government project.
Oh, and M-Pesa is apparently now going into the digital currency market proper by integrating with bitcoin.
There is no reason why Ecuador cannot do the same.
Unlikely. Even you yourself admit that you can only describe the idea in general terms. That is because "productive capacity" is a amorphous concept which cannot be quantified or measured or even defined without some controversy. Whatever standard you choose to define "productive capacity" as can and will be gamed by the countries involved since the stakes are so high- that standard will literally determine the size of their economy/wealth. Taking your example, if we link "productive capacity" to power production, expect to see a proliferation of power plants of various types and sizes all over the world as countries race to boost their share of the coins, which equate to wealth. The side effect is that excess power/energy which no one wants will be produced.
p.s. I think you mean production capacity instead of "productive capacity" but for the sake of argument have adopted your nomenclature.
Jesus. Can't even spam right. Kids these days.
systemd is Roko's Basilisk.
Just to ratchet up the insanity!!! A Keynan oppressor and the long-expected fiat currency, it's end times.... or singularity... or something.
Africa's use of mobile devices for financial transactions seems to be working out.
http://www.businessweek.com/articles/2013-03-06/what-africa-can-teach-us-about-the-future-of-banking
You can get a pretty cheap Chinese cell phone, as inexpensive a plan as possible, and then you're good to go. But you're right trust is the issue, albeit perhaps not that big a one. I just have to trust that the grocery store and the other people I transact with will by into the value of the currency at a functional level. We do the same thing with those little piece of paper we carry in our wallets however.
It just happens to be denominated in dollars.
You don't seriously think when the Fed decides to add a trillion dollars to the US money supply that they call up the Treasury Department and tell them to fire up the printing presses? There's only about $4000 of physical currency for every US citizen, and a majority of the physical currency is being held overseas.
Most dollars "exist" as part of aggregate numbers sitting in databases. There's no reason to create an elaborate cryptographic algorithm for identifying each individual unit of currency for a centrally controlled money supply. The whole bitcoin thing, the interesting thing about it, is an attempt to create decentralized money.
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How long before we find that those liquid assets where in fact vapor?
EPS, I get - like you said, there are already banks using phones like credit cards. Centralized banking, based on existing currencies, using cell phones for electronic payment is trivial and common.
The "digital currency" device - that's something a bit tricker, especially given the double (or more) spend problem from truly decentralized digital cash.
That being said, the whole "digital currency" bit being sold here is just the buzzword on top of "we're offering a new fiat currency".
If it's a tangible promise and not "because I say so" then it is not a fiat currency.
...doesn't really seem like a tangible promise :)
That *definitely* sounds like "because I say so".
Amazing how fast truth gets downmodded here, isn't it? Gosh: I wonder why (not) and no doubt who did it.