Ecuador’s monetary system is due to get revamped again. After they switched to USD, 15 years earlier, they are all set to digitise the currency now.
The Ecuador’s Sistema de Dinero Electrónico (electronic money system) started operating in December allowing users to set up accounts and starting this month they will be able to make real transactions.
The electronic system has widely been confused with cryptocurrency but unlike bitcoin, Ecuador’s new project would be controlled by the government and tied directly to the local currency—the dollar. It is in fact comparable to M-Pesa or the government run version of Venmo, which aided mobile transactions. This system however, will also run on ‘dumb’ phones ensuring a wider user base. The electronic money system does not require Internet access or an account with a financial institution, and it can be redeemed for physical money at any time, the central bank’s website said.
The Central Bank of Ecuador announced earlier this week that it had signed a deal with a 60,000-member taxi organization to accept the electronic money. The project’s second phase—in which users will be able to pay for select services and send money between individuals—will begin in mid-February. Through the agreement signed with FEDOTAXIS, the ECB made available to carriers taxi a means of payment that allows them to make charges fees safely and quickly. .Jorge Calderón, the taxi organization’s president, praised the electronic money system as potentially improving service, since it will not require drivers to stash as much coinage.
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Users will be able to pay taxes and do mobile payments with electronic money in the system’s third phase which is due to begin in the later half of this year. Fausto Valencia, who is overseeing the project for the central bank,said the government expects about 500,000 people to sign up in 2015, according to several Ecuadorean reports.
“I think quite rapidly people will be using it all over the place,” said Paul Buitink, a cryptocurrency expert who teaches at Universidad San Francisco de Quito. “The plan is quite aggressive—they really want the whole population to use it as soon as possible.”
Under speculation that this is an attempt to replace the dollar- based monetary system, Diego Martinez, economist and a delegate of the President of the Republic to the Board of Regulation and
Monetary and Financial Policy, told CNBC- “Electronic money is designed to operate and support the monetary scheme of dollarization,” and that the Ecuador law expressly states that economic transactions are conducted in U.S. dollars.
Electronic money will not only help the poor, he added, but will act as a cost-saving mechanism for the government: Ecuador spends more than $3 million every year to exchange deteriorating old notes for new dollars, Martinez said. There would presumably be less wear and tear on the currency if much of it was stored at the central bank while citizens relied on mobile payments.