Ecuador to launch national digital currency similar to Bitcoin

Ecuador intends to launch its own national digital currency similar to cryptocurrencies such as Bitcoin.

Ecuador has revealed more details about its intentions to create what it has described as the world’s first digital currency to ever be issued by a country’s central bank.

According to President Rafael Correa, the aim of the digital currency, which has yet to be given an official name, is to help people in Ecuador who cannot afford traditional banking.

The electronic form of money, akin to the virtual currency Bitcoin, will begin circulating in Ecuador as early as this December, if things go to plan.

It will sit alongside the South American country’s existing currency, the US dollar. This replaced the national currency ‘sucre’ in 2000 following a banking crisis that had emerged at the back end of the 20th century.

Some experts speculate that this is the first step in eventually abandoning the US dollar. Since its implementation, things have not gone exactly to plan – social spending has tripled over the last decade and Ecuador is billions of dollars in debt.

“It will be interesting to see who controls the exchange rate,” Jeremy Booney, a product manager for digital currency news provider Coindesk, was quoted by the BBC as saying.

“So when an Ecuadorean exchanges the digital currency for US dollars, is it going to be the government who sets the rate, or is it down to supply and demand? And the government could decide to put the digital currency up if it wants.”

Speaking to Bloomberg, Jose Mieles, an economist at Quito-based research institute Cordes, said that when the digital currency comes into effect, there will be increasing “temptation” to use it to “pay bills”. The reason that this approach to debt management will arise is that Ecuador will have effectively “exhausted” its current source of US dollars, the expert explained.

Officials from the Central Bank of Ecuador have said that it will act as a payment system to government bureaucrats. Moreover, it will help the poorest citizens make and receive payments using smartphone technology.

This kind of system has proved to be not only popular but effective in poor countries – in Africa, for example, it has have a transformative impact.

“If they find a way to make an efficient use of the electronic currency to manage just certain types of payments and make some procedures easier and faster, and they hold themselves on doing it responsibly, it may be a good thing,” Juan Lorenzo Maldonado, a Latin America economist at Credit Suisse Group AG, told Bloomberg in an interview.

Despite the fact that the South American country faces many problems, there are signs that it is getting things back on track. For example, last year, the economy grew by 4.5 per cent, slightly above the official target of 4.05 per cent. Interestingly, growth was spurred by non-oil sectors, including construction, which is primarily the main engine in economic recovery in the country.

Although its economy has diversified in recent years – moving away from an explicit dependency on crude oil – Ecuador’s fortunes are still heavily entwined in oil revenues.

< Top image: Jonny Blair >