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Ecuador To Forge Ahead With State-Backed Digital Currency

samzenpus posted about 4 months ago | from the lets-make-money dept.

The Almighty Buck 85

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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Wow (2)

Tyrannicsupremacy (1354431) | about 4 months ago | (#47618287)

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 (1)

Tyrannicsupremacy (1354431) | about 4 months ago | (#47618299)

Slashdot admins maybe instead of post preview you should allow a grace period for editing posts (SHOULD READ IN ALL CAPS) Also please allow full capslock posts for comedic effect

Re:Wow (4, Informative)

Ralph Wiggam (22354) | about 4 months ago | (#47618357)

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."

Re:Wow (0)

Tyrannicsupremacy (1354431) | about 4 months ago | (#47618381)

WOW a simple yes or no would have been fine!!

Re:Wow (-1)

Anonymous Coward | about 4 months ago | (#47618477)

if i wanted your lip i would have scraped it off my zipper, dirty bird faggot.
 
now go back to paying junkies to fuck you up the ass, queer bitch.

Re:Wow (1)

fuzzyfuzzyfungus (1223518) | about 4 months ago | (#47618831)

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...

Re:Wow (2)

puto (533470) | about 4 months ago | (#47619051)

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.

Re:Wow (0)

Anonymous Coward | about 4 months ago | (#47626905)

Maybe you can fix that too, you fucking faggot. You're a cunt and a bitch.
 
And your little faggot homepage sucks a big dirty dick right out of another faggots asshole.

Re:Wow (1)

schweini (607711) | about 4 months ago | (#47618935)

The Costa Rican Colon is actually not directly pegged to the USD. It's a bit more complicated [wikipedia.org]

Re:Wow (0)

Anonymous Coward | about 4 months ago | (#47619669)

That does sound complicated, and a bit uncomfortable...

I'll add (1)

dbIII (701233) | about 4 months ago | (#47619007)

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.

Re: Wow (1)

KramberryKoncerto (2552046) | about 4 months ago | (#47619571)

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.

Reason why Ecuador adopted the USD (1)

Camael (1048726) | about 4 months ago | (#47619653)

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]

Ignorant idiot (-1)

Anonymous Coward | about 4 months ago | (#47622179)

"When a nation's currency basically falls apart, they are forced to turn to another country's currency to get their economy to function."

No, they're not. The GOVERNMENT can start printing money backed by LABOUR, just as the 'evil' Hitler did when the Jews had totally destroyed Germany's money system.

http://www.thetruthseeker.co.uk/?p=83879

"Germany was destroyed in the 1940s because it was the most serious threat to Jewish worldwide financial hegemony the world has ever seen. While the rest of the world was mired in a Jewish-imposed worldwide depression — and people were starving in the streets everywhere, including the United States — Germany under Adolf Hitler was thriving, because it had freed itself from the shackles of the international bankers and their devastating criminal formula of fractional reserve lending, which is the exact thing that is strangling societies all over the world today."

http://wakeupfromyourslumber.com/node/6720

"Hitler began a national credit program by devising a plan of public works that included flood control, repair of public buildings and private residences, and construction of new roads, bridges, canals, and port facilities. All these were paid for with money that no longer came from the private international bankers.
The projected cost of these various programs was fixed at one billion units of the national currency. To pay for this, the German government (not the international bankers) issued bills of exchange, called Labor Treasury Certificates. In this way the National Socialists put millions of people to work, and paid them with Treasury Certificates.
Under the National Socialists, Germany’s money wasn't backed by gold (which was owned by the international bankers). It was essentially a receipt for labor and materials delivered to the government. Hitler said, "For every mark issued, we required the equivalent of a mark's worth of work done, or goods produced." The government paid workers in Certificates. Workers spent those Certificates on other goods and services, thus creating more jobs for more people. In this way the German people climbed out of the crushing debt imposed on them by the international bankers.
Within two years, the unemployment problem had been solved, and Germany was back on its feet. It had a solid, stable currency, with no debt, and no inflation, at a time when millions of people in the United States and other Western countries (controlled by international bankers) were still out of work. Within five years, Germany went from the poorest nation in Europe to the richest.
Germany even managed to restore foreign trade, despite the international bankers’ denial of foreign credit to Germany, and despite the global boycott by Jewish-owned industries. Germany succeeded in this by exchanging equipment and commodities directly with other countries, using a barter system that cut the bankers out of the picture. Germany flourished, since barter eliminates national debt and trade deficits. (Venezuela does the same thing today when it trades oil for commodities, plus medical help, and so on. Hence the bankers are trying to squeeze Venezuela.)"

And so all the remaining Jew-controlled countries declared WAR on Germany, because the nation-wrecking Jew parasites knew that the people of other countries would soon wake up, after seeing how successful Germany had become by freeing itself from the Jewish parasite, and would start kicking out the Jews in THEIR countries too.

Re:Ignorant idiot (0)

Anonymous Coward | about 4 months ago | (#47640547)

Amazing how fast truth gets downmodded here, isn't it? Gosh: I wonder why (not) and no doubt who did it.

Re:Wow (2)

fuzzyfuzzyfungus (1223518) | about 4 months ago | (#47618755)

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).

Re:Wow (1)

Arethereanyleft (442474) | about 4 months ago | (#47626489)

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...

Re:Wow (1)

Tyrannicsupremacy (1354431) | about 4 months ago | (#47626525)

Saved in the "information I'll probably never need" part of my brain!

Re: Wow (0)

Anonymous Coward | about 4 months ago | (#47627077)

Um, the change is USD too. But yes, sometimes it's hard to break a $20. Sometimes it's even hard to break a $5.

What could possibly go wrong? (4, Interesting)

cl3v3r (3775089) | about 4 months ago | (#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.

Re:What could possibly go wrong? (-1)

angel'o'sphere (80593) | about 4 months ago | (#47618625)

If it is government backed, it is not a fiat currency.

Re:What could possibly go wrong? (1)

Anonymous Coward | about 4 months ago | (#47618769)

I do not think that word means what you think it means.

Re:What could possibly go wrong? (1)

TeknoHog (164938) | about 4 months ago | (#47626719)

US dollar is a Fiat currency. Bitcoin is a Ferrari currency.

Re:What could possibly go wrong? (1)

oodaloop (1229816) | about 4 months ago | (#47621379)

A fiat currency, by definition, is one backed by a government. If you don't know what words mean, look them up.

Re:What could possibly go wrong? (1)

angel'o'sphere (80593) | about 4 months ago | (#47623899)

Fiat by definiiton is a non backed currency.
A government btw, can only back a currency if it has something to back it with, which they usually don't have ...
Perhaps you should look up a what talk about :)
ROFL

Re:What could possibly go wrong? (1)

oodaloop (1229816) | about 4 months ago | (#47624979)

I did look it up. On several sites. Wikipedia (and several of the links thereon) define fiat currency as one backed by a government [wikipedia.org] . If you have a better source that says the opposite, please post it.

Perhaps you should look up a what talk about

What?

Re:What could possibly go wrong? (1)

angel'o'sphere (80593) | about 4 months ago | (#47625587)

Pretty simple. Than the wikipedia page is wrong.
Or your reading skills are, no idea. (I'm not going to read it and to correct it, waste of time)

There are tow kinds of currencies: backed currencies and fiat currencies. Fiat currencies are not backed (regardless by whom or what, hence the name :) 'fiat' means 'it shall be')

Ofc, I simplified, there are other currencies, like 'mutual credit' based ones ... just google or read a book about 'alternative currencies' (e.g. "the future of money" and "the money of the future", yes that is two books)

Point is: fiat currencies are not backed. Pretty simple to verify. Assume you have 1000 dollars, and because of galloping inflation you tomorrow realize that you rather have the 'thing' the 'valuable thing' your fiat currency is backed with. So where to you go to? To your bank? Is there an government agency where you can go to? And they really simply shrug, take your paper bills and exchange them for the 'backing' commodity? There is nothing you can exchange your bills for to have a stable 'backing' replacement.
  If you believe otherwise, you are mistaken ...

Re:What could possibly go wrong? (1)

cl3v3r (3775089) | about 4 months ago | (#47627311)

You're mistaken.

If it is backed by a government with real assets (gold, silver, oil, sheep), it's not a fiat currency.

If it is backed by a government "full faith and credit", it's a fiat currency.

Ecuador cannot possibly hope to convince the world of *either*.

Re:What could possibly go wrong? (0)

Anonymous Coward | about 4 months ago | (#47630059)

I'm pretty sure Ecuador has tons of oil, and maybe tons of sheeps too xD

Re:What could possibly go wrong? (1)

angel'o'sphere (80593) | about 4 months ago | (#47631151)

I'm not mistaken, you are. And doubly so:
If it is backed by a government with real assets (gold, silver, oil, sheep), it's not a fiat currency.
That is exactly, what I said, so how can I be mistaken there?

If it is backed by a government "full faith and credit", it's a fiat currency.
That is exactly, what I said! So how can I be mistaken there?

Fiat implies not backed.
Backed is a contradiction to fiat, plain simply.

Re:What could possibly go wrong? (1)

cl3v3r (3775089) | about 4 months ago | (#47635277)

"full faith and credit" is not the same as "gold, silver, oil, sheep"

Fiat is backed by something imaginary ("full faith and credit").

Non-fiat is backed by something real (gold, silver, oil, sheep).

Ecuador has neither.

Re:What could possibly go wrong? (1)

angel'o'sphere (80593) | about 4 months ago | (#47637127)

The terms fiat an backed simply do not belong into the same sentence .... arguing a fiat currency is backed by faith is a bit far sketched imho.

Ecuador has its own currency tied to the US dollar, hence that electronic currency is 'backed by US dollar', but the fact that the US dollar is unbacked remains :)

Puh-lease (1)

Ecuador (740021) | about 4 months ago | (#47618869)

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

Re:Puh-lease (1)

Ecuador (740021) | about 4 months ago | (#47618871)

Well, or at least that's how it looks like.

Re:What could possibly go wrong? (0)

Anonymous Coward | about 4 months ago | (#47618921)

It's to be used alongside the paper currency, which is NOT being phased-out. The government is not forcing anyone to use it either.
Ecuador is not bankrupt. Their growth rate is above the region's average and has been like that for years. If you're referring to them refusing to pay some of their debts, that has less to do with them not having the cash and more to do with the debts not being considered legal.

Re:What could possibly go wrong? (0)

Anonymous Coward | about 4 months ago | (#47619207)

HA HA HA !!! you seem to be a)Outside Ecuador or b)Brainwashed by the Ecuadorians government propaganda. Ecuador pawns half its gold reserves with Goldman Sachs [gata.org]

Re:What could possibly go wrong? (0)

Anonymous Coward | about 4 months ago | (#47619217)

...just like Argentina's president. She refuses to pay the debts that her dead husband signed for when he was president. And she says now that the debt is not legal... they signed for it.

Re:What could possibly go wrong? (0)

Anonymous Coward | about 4 months ago | (#47619991)

Kirchner does not says the debt is illegal, AFAIK, just that they are only paying the creditors they have an agreement with (about 95%, I think, agreed to receive less than the contract said, the others get nothing). They do make payments to those 95%, but since they're idiots they thought it wise to relay the money through a US bank and of course it was stolen and now they're slightly more fucked than before. Teaches them right. A fool and his money are soon parted.

Re:What could possibly go wrong? (1)

fuzzyfuzzyfungus (1223518) | about 4 months ago | (#47618945)

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 controls that it might as well be 'frequent flier miles' or 'loyalty points' or so dysfunctional that it's just a hobby for noise traders takes some doing; but 'digital currency' that pegs to some other currency and mostly aims at reducing transaction costs(and passing the savings on to the issuer) is wildly popular. In the US, the main issuers are Visa and Mastercard, and they are still using an effectively unauthenticated plaintext tokens because trying harder requires effort.

If they plan to make 'ecuadorcoin' the next cypher-goldbug craze they might as well give up now; but managing a tame electronic transfer system(ideally; but not necessarily with some sort of architectural elegance) with at least domestic popularity in areas with better infrastructure is a markedly more attainable outcome.

I think you are looking at this the wrong way (3, Insightful)

dbIII (701233) | about 4 months ago | (#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.

Many of them do have such devices (1)

dbIII (701233) | about 4 months ago | (#47619277)

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 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.

It's not far fetched at all (2)

Camael (1048726) | about 4 months ago | (#47619735)

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 Ecuador cannot do the same.

EPS != digital currency (1)

cl3v3r (3775089) | about 4 months ago | (#47627351)

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".

Still driving that old Fiat (1)

dbIII (701233) | about 4 months ago | (#47628645)

If it's a tangible promise and not "because I say so" then it is not a fiat currency.

Unspecified "liquid assets"... (1)

cl3v3r (3775089) | about 4 months ago | (#47635283)

...doesn't really seem like a tangible promise :)

That *definitely* sounds like "because I say so".

Re:What could possibly go wrong? (1)

radarskiy (2874255) | about 4 months ago | (#47619655)

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

Re:What could possibly go wrong? (0)

Anonymous Coward | about 4 months ago | (#47623657)

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

All fiat currencies are backed by "liquid assets". These include, but are not limited to (in no particular order):
Currency of other countries
Corporate Bonds
Government Bonds
Government Bonds of other countries
Precious Metals
Commercial Paper
Other Receipts for Commodities (such as crude oil)
Corporate Shares

Of course, the underlying *quality* of the liquid assets varies greatly.

Re:What could possibly go wrong? (1)

cl3v3r (3775089) | about 4 months ago | (#47627359)

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.

Look to Africa... (0)

Anonymous Coward | about 4 months ago | (#47621487)

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.

Smart (0)

Anonymous Coward | about 4 months ago | (#47618347)

When the economic house of cards the US federal reserve built collapses their currency won't be tied to the US's monopoly money.

Re:Smart (2, Interesting)

Anonymous Coward | about 4 months ago | (#47618489)

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.

Re:Smart (1)

themusicgod1 (241799) | about 4 months ago | (#47619127)

. It is a very fine balancing act to maintain currency values but it can be and has been done for a long time.

On the contrary, since the Federal Reserve got started, the markets have been less not more stable, and both the US and global financial system has seen more, not less panics, of greater, not less severity.

A Great Experiment! (1)

Scottingham (2036128) | about 4 months ago | (#47618353)

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.

Re:A Great Experiment! (1)

bobbied (2522392) | about 4 months ago | (#47618413)

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.

Re:A Great Experiment! (1)

Scottingham (2036128) | about 4 months ago | (#47618487)

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.

Re:A Great Experiment! (0)

Anonymous Coward | about 4 months ago | (#47618563)

I think you're confusing Argentina and Ecuador. They're very different countries. The only similarity is that Spanish is the predominant language. Argentina is geographically part of the Andes but politically and culturally it's not Andean. They don't even eat guinea pig in Argentina!

Argentina is a whole different kind of messed up than Ecuador, but on the whole Argentina is much more stable and much more affluent.

The only stable thing in Ecuador is their currency, which is the green back. They don't even use a peg; they just use U.S. dollars. The downside is that everything is ridiculously expensive in Ecuador, at least from the perspective of the population. The use of dollars brought stability, but it also brought a kind of economic stasis. Even though Ecuador touts strong economic growth, the vast majority of people find staples like food, clothing, etc to be very expensive. This has left successive governments needing to pander to the far left on the one hand, while on the other promising business interests that it won't move away from the dollar currency. The result is political endless quagmire.

Re:A Great Experiment! (1)

slew (2918) | about 4 months ago | (#47618885)

the vast majority of people find staples like food, clothing, etc to be very expensive

That's an unfortunate reality of their economic power of the people, not the currency they use for transactions...

Of course if they returned to their own currency, they could devalue it to temporarily improve the lot of their poor (if you don't save money and don't have any capital and live day-to-day, devaluation doesn't hurt you as much), but ultimately that is another level of hell that they just got out of...

Local currency manipulation might be able to smooth over the rough patches, but improving the economic power of the population relative to the rest of the world is really the only way out.

I suspect the benefit of a digital currency is mostly to improve local liquidity of money given the country's current crushing sovereign debt load and critical need to preserved hard cash to finance it (as they've defaulted on bonds). A parallel virtual currency is much cheaper to deploy on short notics than a parallel physical currency.

This vaguely reminds me back in the 80's when I went to china, with their two-currency system (RMB vs FEC or foreign exchangeable currency). Nominally they were the "same" value, but of course their value in real life was quite different. I suspect the same will be true here...

Re:A Great Experiment! (0)

Anonymous Coward | about 4 months ago | (#47619267)

"devalue it to temporarily improve the lot of their poor" ???? Devaluate is to rip off everybody that has money saved... it does not help the poor. It offers the poor to get cheap paying jobs, and not being able to buy anything with their savings. Before Ecuador used the US dollar, an office secretary was not able to buy a car. People was not able to think about saving for the future, just living up-to-day. The government (all in the last 20years) is very corrupt and irresponsible, it is better to do not trust them with a local currency because they always turn Mad.

Re:A Great Experiment! (0)

Anonymous Coward | about 4 months ago | (#47620117)

"That's an unfortunate reality of their economic power of the people, not the currency they use for transactions..."

Um, no. The affordability of consumer products in Ecuador is directly tied to dollarization. While the inflation of the 1990s was bad for the Ecuadorian economy as a whole, very often in inflationary periods consumer prices seem to improve for the average Joe.

In order for Ecuador to get access to more dollars to circulate in their economy, they must have strong exports to the United States. It's not like America just ships boats full of cash to Ecuador. It's only in exchange for goods.

If Ecuador doesn't run a strong enough current account surplus (which it hasn't), that can lead to relative _deflation_ of the dollar in Ecuador. (This is also why the dollar can experience deflation relative to the Japanese Yen or Chinese Renminbi.) You would think that deflation automatically means falling prices, which is good, right? No. It means deflation for goods and services produced in Ecuador. But the dollar-denominated price of imported goods and services, especially for such a small economy as Ecuador. Why sell a product in Ecuador for $5 (the dollar-denominated price in Ecuador) when you can get $7 in the United States. So the real cost of imported goods increases (inflates) from the perspective of the Ecuadorean faster than his paycheck. And this process isn't guaranteed to reach a demand-supply equilibrium because the Ecuador-US trade in goods isn't a closed system. While the real price of Chinese made goods can drop in the United States, it can simultaneously increase in Ecuador, even though we're using the same currency!

Ecuador is a small country and imports lots of goods, especially consumer items. All it produces domestically is basically bananas and oil. It's not like the United States where most staple commodities and goods are produced domestically and won't diverge much from the purchasing power of our currency.

So while dollarization has helped to stabilize and improve the Ecuadorian economy overall, it has led to many poor- and working-class Ecuadorians (the vast majority of the population) feeling that in many ways things have been made worse by dollarization. What they see day-to-day is that clothing, appliances, packaged foodstuffs, etc has become a greater burden on their household income.

In the best of all worlds Ecuador would drop dollarization and return to the Sucre. But most people are probably right that the Ecuadorian government simply can't be trusted to manage a local currency properly.

Re:A Great Experiment! (0)

Anonymous Coward | about 4 months ago | (#47620255)

I should also add that this phenomenon is why the gold standard is a bad idea.

During the 1920s the United States was shipping an epic amount of new appliances like refrigerators and radios to Europe. This caused deflation in most European countries because the United States was accumulating all the gold. Conversely, this caused inflation in the United States.

This deflation caused real wages to drop relative to the global price of goods, which brought economic growth to a standstill, especially in staunch gold-standard countries like Great Britain. The inflation in the United States drove the stock market bubble. Even worse, Europeans used their gold reserves to buy American stocks, because they saw an outsized return relative to Americans.

But eventually the slow economic growth of European nations stopped the gravy train. Once the United States had accumulated most of the gold, the entire global economy collapsed.

Linking to "productive capacity" is unlikely (1)

Camael (1048726) | about 4 months ago | (#47619843)

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. 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.

Re:A Great Experiment! (1)

pantaril (1624521) | about 4 months ago | (#47620571)

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?

Interesting turn of phrase (1)

grcumb (781340) | about 4 months ago | (#47618415)

'Ecuador To Forge ... Currency'

I see what you did there. :-)

Yet another fiat currency (1)

davidwr (791652) | about 4 months ago | (#47618423)

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.

Re:Yet another fiat currency (1)

westlake (615356) | about 4 months ago | (#47619119)

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.''

Re:Yet another fiat currency (2)

dbIII (701233) | about 4 months ago | (#47619149)

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 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.

Re:Yet another fiat currency (1)

Camael (1048726) | about 4 months ago | (#47620577)

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 handing me the goods. No fiddling with passwords and praying that the authenticating servers are online. Or worrying about batteries going flat in mobile phones.

Secure medium of storage- Paper money stored properly can last for on average 15 years [federalreserve.gov] . I have doubts whether any electronic wallet are as long lasting, not to mention the associated difficulties of maintaining your device, the apps or encountering the horror of corrupted [reddit.com] wallets [bitcointa.lk] .

Easily divisible- Say my kid needs 10 bucks to buy ice-cream. I peel off a bill and hand it to him. You can't do that with an electronic wallet AFAIK.

My point being that at least in the near future, I see physical cash still playing a major part in our lives.

Re:Yet another fiat currency (1)

dbIII (701233) | about 4 months ago | (#47620647)

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?

Re:Yet another fiat currency (1)

complete loony (663508) | about 4 months ago | (#47622463)

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.

They could call it ... (1)

angel'o'sphere (80593) | about 4 months ago | (#47618641)

Equ, or
Ecu (cough, cough).

Re:They could call it ... (1)

Ecuador (740021) | about 4 months ago | (#47618815)

Funny, but no, I do not think the name of the precursor to the Euro would be a great name.

Re:They could call it ... (1)

gargleblast (683147) | about 4 months ago | (#47619065)

Yeah. Why don't they just use the full name? Ecuadoge.

Re:They could call it ... (1)

dbIII (701233) | about 4 months ago | (#47619181)

I was amused when it was called the Euro since that's the name for a large marsupial I've seen hopping around:
http://www.rootourism.com/fsheet28.htm

Re:They could call it ... (1)

angel'o'sphere (80593) | about 4 months ago | (#47625257)

Yeah, that is funny :)

Re:They could call it ... (1)

fuzzyfuzzyfungus (1223518) | about 4 months ago | (#47618967)

The European Currency Unit sees what you did there...

Not like bitcoin... (2)

Dastardly (4204) | about 4 months ago | (#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.

Re:Not like bitcoin... (0)

Anonymous Coward | about 4 months ago | (#47619305)

Neo-liberal??? that is just political crap used to brain wash you. The model is the model... the person that implements it make it successful or failure. Just because it is "not Neo-Liberal" it does not mean it is good or bad. Correa's populist strategy it to spend the money that he does not have to make people happy. It will last a year or two, but now the nation belongs to China, Ecuador is paying China's credit with Oil that haven't been extracted yet (we pawned the oil), Ecuador gave half of his gold resources to Goldman Sachs [gata.org] (we pawned the gold). Is that a sign of good economy?

Re:Not like bitcoin... (1)

Zontar_Thing_From_Ve (949321) | about 4 months ago | (#47622221)

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 mismanagement and corruption on. Correa can't really see very far into the future and he has no great plan. It took a call from Joe Biden to point out that the US buys a lot of stuff from Ecuador that we could buy elsewhere. There's nothing special about Ecuador as a source for those things. That got him to back off a pretty virulent and typical anti-US rant related to Edward Snowden when he realized that he could very quickly be looking at an economy destroying US boycott. All he really cares about is staying in power and providing little scraps to the citizens to keep his job. Whether this idea works or not, it's not part of any great plan or forward thinking. It's all just part of his general anti-US outlook. He can't really scrap the dollar and go back to the worthless sucre, so this is his only alternative.

Re:Not like bitcoin... (0)

Anonymous Coward | about 4 months ago | (#47623311)

Even if its not like bitcoin, an all digital backed currency would have INTERESTING implications for Bitcoin. You'd be able to trade back and forth in and out of Bitcoin seamlessly.

The US Should Have Been the Leader (0)

Anonymous Coward | about 4 months ago | (#47618749)

It'd be possible to implement a cryptocurrency without changing monetary policy. I'm sad the US hasn't taken the lead in this.

not spam (-1, Flamebait)

BlaiseCollinsonvum (3777607) | about 4 months ago | (#47620603)

my Aunty Ellie recently got a fantastic red Subaru WRX by work part-time using a lap-top... Read Full Report >>>>>>>>>>>>>>>>> WÃWÃW.JÃuÃmÃpÃÃ62.CÃoÃÃÃm

Re:not spam (1)

wonkey_monkey (2592601) | about 4 months ago | (#47620789)

Jesus. Can't even spam right. Kids these days.

Call it the Amero!! PLEASE! (0)

Anonymous Coward | about 4 months ago | (#47621231)

Just to ratchet up the insanity!!! A Keynan oppressor and the long-expected fiat currency, it's end times.... or singularity... or something.

I use digital currency for 95% of my purchases. (1)

hey! (33014) | about 4 months ago | (#47621839)

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.

liquid assets (1)

Issarlk (1429361) | about 4 months ago | (#47623017)

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