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The Almighty Buck Government

Ecuador To Forge Ahead With State-Backed Digital Currency 85

Posted by samzenpus
from the lets-make-money dept.
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.'”
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Ecuador To Forge Ahead With State-Backed Digital Currency

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  • 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?
    • Re:Wow (Score:5, Informative)

      by Ralph Wiggam (22354) on Wednesday August 06, 2014 @07:27PM (#47618357) Homepage

      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."

      • It's probably worth noting that Panama has been...graciously hosting...the Panama Canal for a very similar amount of time(US took over the effort in 1904, finished 10 years later) and that 'Panama' fortuitously fought a (very briefly and and largely without incident; because the US Navy helpfully cut off Columbian troop movements in the area) struggle for freedom right when it looked like Columbia might not ratify the treaty necessary to allow US adoption of the project...
        • by puto (533470)
          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.
      • by schweini (607711)
        The Costa Rican Colon is actually not directly pegged to the USD. It's a bit more complicated [wikipedia.org]
      • When a nation's currency basically falls apart, they are forced to turn to another country's currency to get their economy to function.

        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.

      • Just a note that it takes a strong economy and good financial health to peg a currency to the USD, or the currency will be destroyed by speculators anyway.
      • 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 [todayinecuador.com]
        The effect of dollarization in Ecuador [mindspring.com]

    • 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).

    • It's really pretty weird there. You pay in dollars, but a lot of your change will be in old Ecuadorian coins. Also, there isn't a lot of change, especially outside of the big cities. I remember one night in a little town in the Andes where two of us were trying to buy enough stuff so that we could use a $20 bill. The store only had about $8 in change, and everything was so darn cheap that it felt like we had to buy up half the store.

      If you do go to Ecuador, bring lots of $5 bills. You will be their king...

  • by cl3v3r (3775089) on Wednesday August 06, 2014 @07:19PM (#47618327)

    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.

    • How can they not have PCs when their country, as a whole, is on /. ?
    • 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.

      If they attempt to emphasize the 'currency' part, with all the success of a country that dollarized because its existing currency was having serious issues, the whole effort will likely either drown without a ripple or somehow end up making a hedge fund with a taste for high risk investments and exotic international litigation quite rich; but it's actually less implausible if they go light on the 'currency' bit and work on the 'digital'.

      Attempting to float a 'currency' that isn't so larded with export co

      • by dbIII (701233) on Wednesday August 06, 2014 @09:11PM (#47619087)
        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.
    • Because, of course, every last man, woman, and child in Ecuador has a PC or other digital currency device, right?

      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

      • Take for example, in Kenya the M-Pesa [techrepublic.com], 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 [economist.com].

        And M-Pesa is private owned, not a government project.

        Oh, and M-Pesa is apparently now going into the digital currency market [coindesk.com] proper by integrating with bitcoin.

        There is no reason why Ecuado

      • 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".

    • Backed by liquid assets is exactly the opposite of a fiat currency.

      • by cl3v3r (3775089)

        Depends on what those liquid assets are. Backed by another fiat currency? Still a fiat currency. Backed by a gold backed currency? Sure, it's not a fiat currency anymore.

        That being said, I'm not convinced Ecuador has either.

  • 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.
    • by bobbied (2522392)

      The whole thing is a huge waste anyway. But, given they have totally wrecked their 'hard" currency, why not do it virtually?

      This is NOT a good example of a digital currency experiment because it is certain to fail, just like their current script. What matters is that they get out of default and I don't see that happening anytime soon. Launching a virtual currency isn't going to change this.

      • You are likely correct. I suppose this is just one of the best opportunities for it to work.

        Maybe Iceland would be a good place to start.
    • 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

      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. Whatev

    • by pantaril (1624521)

      This is a great experiment that I hope the whole world is watching closely.

      What is so great about it? Isn't it just another government-issued currency?

  • 'Ecuador To Forge ... Currency'

    I see what you did there. :-)

  • 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, th

    • by westlake (615356)

      if it's backed by gold, US dollars, or some other reasonably-stable commodity AND there is no debasing

      First sentence of the article you so obviously haven't read:

      After mortgaging most of Ecuador's oil and gold to finance spending, President Rafael Correa is planning to create virtual money to pay the nation's bills.

      and the last:

      "I wouldn't want to be converted into a new currency managed by an untested central bank," Reichold said. Creating a currency "isn't straightforward even when you're in a country with a perfect track record of successful economic management, and I don't think Ecuador is in that category.''

    • by dbIII (701233)

      However, if it's backed by gold, US dollars, or some other reasonably-stable commodity

      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

      • by Camael (1048726)

        Now that so many people have mobile phones it makes perfect sense to print less banknotes and use phones as digital wallets.

        Perfect sense to the currency issuers and banks, who stand to save on costs associated with the production, transportation and security of physical cash, but less so to the actual users themselves. There are still numerous situations where using physical cash is still superior to digital wallets such as-

        Ease of use- there is literally nothing simpler than me handing you the money, you

        • by dbIII (701233)
          Probably an even longer lifespan than 15 with the plastic money, however I see this electronic currency replacing debit/credit cards plus transport cards etc as used now instead of cash in all cases. I already use a replacement for cash to get on a train - why not debit the account on a phone directly instead of having to fill up the digits on an RFID or whatever every few weeks?
      • Personally I'd rather we used more government printed money. The alternative we have now is banks creating "money" by issuing loans. Society would be better off if we removed bank managers from their current privileged position.
  • Equ, or
    Ecu (cough, cough).

  • by Dastardly (4204) on Wednesday August 06, 2014 @08:08PM (#47618669)

    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 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.

      I can assure you that Correa is anti-American first and above all things just like most of those in South American presidencies right now. He is an economist at absolute best second. This has very little to do with MMT and is all about reducing dependency on the US, including the dollar. He's just barely less anti-American than the governments of Venezuela and Cuba. Like his similar minded fellow presidents in most of the region, the US provides a convenient evil boogey man to blame government mismanage

  • 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 identify

  • How long before we find that those liquid assets where in fact vapor?

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