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Ecuador intends to create their own national cryptocurrency

Ecuador intends to create their own national cryptocurrency

On the 23rd of July, the government of Ecuador effectively banned bitcoin, along with all other cryptocurrencies, reports the PanAm Post. The legislation forms part of a reform of the country’s monetary and financial laws. The bill was approved by 91 members of parliament, with 22 votes against and 3 abstentions. President Rafael Correa, who introduced the reform bill, will sign it into law.

Commentary posted here

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Creation of State “Digital Currency”

The reform bill announces the creation of an Ecuadorian state digital currency, to be backed up by the assets of the central bank, and which will allow the government to make payments in digital currency. The new cryptocurrency is set to function alongside the country’s official currency, although exact implementation plans have not yet been outlined.

In their statement the Ecuadorian National Assembly said:

“Digital money will stimulate the economy; it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone. The digital currency will be backed by the assets of the Central Bank of Ecuador.”

As explained in Article 99 of the bill, the government’s Monetary and Financial Regulatory Committee will be responsible for regulation of the digital currency while the Central Bank of Ecuador will be charged with its implementation and development.

Blanket Ban on Other Cryptocurrencies

Part of the bill (Article 96) is the prohibition of “emission, production, initiation, falsifications, or any other type of [cryptocurrency] simulation, and its circulation through any channel or way of representation.” Concern is raised by the bill’s apparent outlawing of the use and circulation of any currency not authorized by the Monetary and Financial Political Regulatory Committee:

“Violations of these prohibitions will be sanctioned according to what is stated under the country’s Penal Code, and whatever is found will be confiscated along with the purchased products.”

Bitcoin Community Speaks Out

The Bitcoin Community of Ecuador sent an open letter to the National Assembly in which they voiced their concerns, namely the legislation’s threat to Ecuadorians’ right to privacy (as enshrined in the constitution) and, also, imposed limitations on Ecuadorians’ freedom to use other cryptocurrencies, such as Bitcoin and Litecoin.

Additionally, the Bitcoin Community of Ecuador requested inclusion of a clause that delineates the boundary between personal data, on the one hand, and data pertaining to the state-run cryptocurrency’s transaction system, on the other.

“Ecuador, as a pioneer in the creation of a digital state-run currency, must use methodologies that respect fundamental rights. The digital-currency system must be verifiable, and its code must be published as free software, to ensure the system’s privacy through algorithms.”
Bitcoin Ecuador letter to ANE

Luis Nuñez, a member of Ecuador’s Bitcoin Community, told the PanAm Post:

“If what will be emitted is a national digital currency, then they must separate personal data from transaction data. At the design level, more than at the political level. History has shown us consistently that politics can be revoked at any time, and [the bill] will not necessarily fulfill its purpose, which is why we require the incorporation of a privacy algorithm and for the code to be verifiable.”

Implications

Ecuador currently uses the US dollar as its official currency, and the new national cryptocurrency will be integrated alongside it. The balance of payments made in each currency remains to be seen, yet, regardless of extent or degree, this move by the Ecuadorian government represents another blow to Dollar hegemony.

For all its challenges of centralization, privacy and openness the Ecuadorian national cryptocurrency experiment represents a controversial move with unknown political and economic consequences. Elsewhere in South America, Bitcoin ATMs are starting to pop up. That Ecuador bans Bitcoin in the name of progress, is truly unfortunate.

Commentary and analysis: Ecuador’s new digital currency

Do you have any comments or thoughts about these developments in Ecuador? Feel free to comment below.

Featured image from Shutterstock.

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Posted by Venzen Khaosan

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.