Ecuador: New Virtual Currency is concern to some

Miamherald.com/Jim Wyss wrote: Authorities say the mobile money scheme is a way to offer financial services to those in remote areas where banks are scarce and to help jump-start small businesses. Skeptics, however, fear the system opens up a backdoor for the cash-strapped administration to shed the restrictions of its dollarized economy and, just perhaps, “print” its own digital currency.

Growth in the system, however, has been slow. There’s only $645,669 worth of digital cash in circulation and less than 1 percent of the country’s 17 million cellphones are registered to the service, according to Central Bank figures.

Simon Pachano, a political analyst with the Latin American Faculty for Social Sciences in Quito, worries that the virtual money may be Correa’s stealth route back to a national currency.

“Correa has always wanted to abandon the dollar,” he said. “For him it’s an aberration. It bothers him to be the president of a dollarized country.”

On the surface, the innovation seems benign: To receive a digital dollar, a customer has to turn in a physical greenback. But Pachano and others worry that the central bank has too much leeway over the use of those physical dollars, including financing the national debt by buying government bonds.

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“That initial liquidity that backs the whole system could be turned into non-liquid assets that could cause economic problems under certain circumstances,” he said. In short, if e-money became widespread, and there was ever a mass rush to redeem the currency, it could collapse the system. Read Article