Ecuador’s ‘digital currency’ explained

[Judi Lynn]

Ecuador’s ‘digital currency’ explained

40% of Ecuadorian adults don’t have a bank account, but is their new ‘currency’ more about escaping the US dollar?

Rachel Banning-Lover
Guardian Professional, Thursday 11 September 2014 13.02 EDT

How will Ecuador’s new ‘digital currency’ work?

Under a new monetary code, the Ecuadorian government in August released more information about plans for what they call a digital currency.

40% of Ecuadorians do not have access to a bank account, says Pablo Paredes, director of the Institute of Economics at the Universidad San Francisco de Quito. From December 2014 people will be able to exchange physical cash for digital money that they will keep in an electronic wallet on their mobile phones. “It’s no different from other mobile wallets offered in other countries.”

Who will use it?

It will take time for it to take off, says Alejandro Salas, the regional director for the Americas at Transparency International. People will have to learn to use mobile technology for banking, leaving the older generation particularly vulnerable to being excluded. Ecuadorians will also need to trust that their money is safe when they no longer have it in their hands. “It will take a change of mindset,” adds Salas.

As in other countries, it is likely that the electronic wallet will be used in addition to cash, and not as a total replacement by users, Paredes adds.

Yet digital units do have appeal over cash as they offer a cheaper way to transfer remittances and a more secure way to store their money, says Ben Dyson, founder of Positive Money.

More:
http://www.theguardian.com/global-development-professionals-network/2014/sep/11/ecuador-digital-currency-dollar

[Judi Lynn]

1. RE: Bitcoin

~snip~

Are comparisons to Bitcoin, the stateless digital currency, accurate?

Absolutely not, according to Dyson. “Bitcoin is creating new money, which the Ecuadorians won’t. (Ecuador’s digital initiative) is someone giving you a box to put your cash in then giving you an electronic number that says how much money’s in the box.”

The new legislation requires the digital money to be 100% backed which means for every electronic dollar that they create there has to be a physical dollar at the Bank of Ecuador.

“What is interesting though is the central bank here is saying that the big banks aren’t doing what we need them to do for financial inclusion so let’s just bypass them – that’s quite a big step forward for any central bank to take.”

(From the posted article above.)

[Zorro]

2. The Ecuadorean government will then be able to track everybody's financial transactions

What a great idea.