Join the conversation:

The Economist: Electronic money in Ecuador. Money from nothing?

The Economist: Electronic money in Ecuador. Money from nothing?

Posted by Shanelle Weir on September 04, 2014

The refreshment trolley of Ecuador's central bank (BCE) is an unlikely guinea pig for an experiment with electronic money. The BCE wants its snacks cart to be the pilot for payments made via mobile phones and tablets. In future, central-bank staffers are to pay for sandwiches and soft drinks with their phones, rather than having their consumption charged to monthly payrolls.

The idea of mobile payments has worked well elsewhere, from Scandinavia to sub-Saharan Africa. Cashless transactions are quick, easy, and safe. In Ecuador, an estimated 40% of adults do not have a bank account but the number of mobile phones tops that of the country’s 16m inhabitants. A natural candidate for a mobile-money service is the $50 monthly cash-transfer payment that the government makes to 1.9m poor households.

But the way Ecuador is pursuing the idea of digital cash has led to nervousness in some circles. Elsewhere, private banks and mobile carriers operate the system, but in Ecuador the government-controlled BCE will run things. The country only staved off hyperinflation in 2000 by ditching its currency, the sucre, in favour of the dollar. That means the BCE cannot simply print money, except for a few million in dollar-denominated coins backed by real cash dollars. But a new financial law empowers the BCE to issue “electronic money … equivalent and convertible to dollars". Although this new money is supposed to be backed by cash and "liquid assets", some fear the administration, whose fiscal shortfall is expected to reach $6.8 billion this year, may be tempted to issue electronic money with abandon.

Nonsense, says President Rafael Correa, insisting that the system will simply function like a debit card; that means people will have to make deposits of dollars into brand-new accounts before being able to use the system, with spending capped at $2,000 per month for individuals. It is in any case a little premature to be worrying about uncontrolled monetary emissions. Implementation of the BCE’s snack-cart scheme is already a month late.

Link To Full Article: 

Facebook comments



Monthly newsletter featuring articles hand picked by our country managers from the best content across PanamericanWorld.



Monthly newsletter featuring articles hand picked by our country managers from the best content across the Caribbean Region on PanamericanWorld.