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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.'”
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 a nation's currency basically falls apart, they are forced to turn to another country's currency to get their economy to function.
In Costa Rica they "peg" their currency to the dollar, so there is one permanent exchange rate. Prices can be posted in Colon and Dollars. I paid for everything with dollars when I was there (fantastic country BTW).
Wikipedia lists 25 countries that either use USD or peg to the USD (I'm suspicious of Somalia and North Korea). It's interesting that Panama has been using Dollars for over 100 years.
http://en.wikipedia.org/wiki/Currency_substitution#Anchor_currencies
From-
http://en.wikipedia.org/wiki/Currency_of_Ecuador#1932.E2.80.932000_Sucre
"The sucre maintained a fairly stable exchange rate against the US dollar until 1983, when it was devalued to 42 per dollar and a crawling peg was adopted. Depreciation gained momentum and the free market rate was over 800 per dollar by 1990 and almost 3000 per in 1995.
The sucre lost 67% of its foreign exchange value during 1999, then in one week nosedived 17%, ending at 25,000/US$1 on January 7, 2000. On January 9, President Jamil Mahuad announced that the US dollar would be adopted as Ecuador's official currency. Protests led to his removal. Vice President Gustavo Noboa became president, only to confirm the government's commitment to dollarization.
On March 9, 2000, Noboa signed a law passed by Congress, replacing the sucre with the United States dollar at an official exchange rate of 25,000 sucres per US$1. Both currencies were to circulate, the dollar being used for all but the smallest transactions. Only coins would continue in the local currency."
Every country in the world of any note relies on the US dollar and financial markets. All that money that China supposedly "loans" the US are actually investments. The US offers the most stable and secure places for investments in the world. If the US dollar or financial system collapses any person or country who has their money tied up in US government bonds and securities will suffer. Also remember that 97% of all outstanding US "Debt" is owned by the Federal Reserve. It is a very fine balancing act to maintain currency values but it can be and has been done for a long time.
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.
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?
Probably not too much cause for shame. The dollarization was back in early 2000, and followed a variety of currency chaos(likely why they went with USD. Given the choice a state usually prefers a currency that it has central bank influence over, and rights to mint; but if your indigenous currency is sufficiently unstable your choice is between a currency over which you exert only theoretical control and a currency over which you exert no control that doesn't behave as erratically).
As someone who holds a Panamanian and Colombian passport, the Panama canal zone was amazing when the US ran it. Now it is a dump. The US wanted the canal so it forced a split between Panama and Colombia to become two countries.
The Revolution Will Not Be Televised
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.
Such as enough land to make up an entire country!
It's funny how people don't consider such a resource before yelling FIAT! Bitcoin is a fiat currency because some shadowy recluse said so, and others in the scheme agreed. If a promise is backed by someone with resources and a promise that it will commit those resources then it's backed by more than just "their will", so by definition it's not a fiat currency.
Bitcoin has poisoned the well a bit on this site so I suggest people think instead of the fictional example of a digital currency in "cryptonomicon" which was backed by gold. The digital bit is about creating a mechanism so you can be sure it's really money issued by the whoever is supposed to be issuing it.
Now that so many people have mobile phones it makes perfect sense to print less banknotes and use phones as digital wallets.
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.