Ecuador considering parallel currency to U.S. dollar

Bloomberg.com reported Ecuador, who uses the U.S. dollar as its official currency may create its own parallel currency. This currency would be used for local transactions. Apparently the government is having difficulty in making its spending commitments according to the article.

Congress has until the end of today to vote on President Rafael Correa’s banking proposals, which would allow payments in “electronic money.” Lawmakers are debating whether to insist the central bank back the new currency with a one-to-one dollar guarantee.

As a current-account deficit drains dollars from the economy, making it harder for Correa to fund a burgeoning budget gap, a new currency could be used to meet government payments, said Jaime Carrera, a former deputy finance minister and director of the Quito-based Fiscal Policy Observatory. It could also lose its value quickly if not backed by the central bank, he said. Read Article

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