The recent Bitcoin fiasco may have taught some people a lesson, but apparently they weren’t associated with the government of Ecuador.
In a bold move that will have the CIA, KGB, and all other spy networks as well as cyber criminals cheering, Ecuador has outlawed bitcoin and said it will create its own cybercash for mobile payments. The government will by this change become capable of continuing its out of control spending, while the public will lose all privacy regarding their spending and savings habits.
What the new currency will be called is not yet announced.
Formally, the country uses the U.S. dollar, but if it can pay with an electronic substitute currency, its demand for dollars will be reduced.
Moneynews.com reasoned in an August 29 editorial that “instead of creating a limited amount of currency and letting the market determine its value (like bitcoin), the [Ecuadorian] government intends to create unlimited currency and will determine its value by fiat.”
Elsewhere in the same editorial Moneynews comments, “Having the license to digitally print unlimited currency with little accountability and an insatiable hunger to spend is a recipe for manipulation and political pressure,” continuing, “The end result of ‘cryptocurrency-lite’ will probably not be very pretty.”
Outside of Ecuador’s government it didn’t appear the news was taken well by many people. Landesbank Berlin spokesman Lutz Roehmeyer told Bloomberg News, “This is usually the start of debasement, inflation, and depreciation.”
Stone Harbor Investment Partners LP economist Steffen Reichold said, “I wouldn’t want to be converted into a new currency managed by an untested central bank. [Creating a currency] isn’t straightforward even when you’re in a country with a perfect track record of successful economic management, and I don’t think Ecuador is in that category.”
Ecuador’s official gazette tried to put a positive spin on the announcement. On June 4 the gazette quoted Ecuador President Diego Martinez explaining in congressional testimony how the virtual currency will increase access to the banking system among the country’s poorest residents while being easier and more hygienic to use than dollar bills. Martinez didn’t bother to explain that by forcing all financial transactions through the nation’s banking system it is also going to be convenient to spy on more aspects of everyone’s lives.
In 2000 Ecuador abandoned its sucre currency system in favor of the US dollar. US $1 bank notes and Sacagawea dollar coins have become the mainstay of Ecuador’s economy since that time. Since Ecuador’s humid climate shortens the dollar bill’s life span from its normal 14 to 18 months to less than three months the metal dollar coins are popular, while they are not popular in the United States.
Ecuador has defaulted on its debt twice in recent history. In May the government pledged half its gold reserves against a $400 million loan, while selling its declining future oil production to China for $2 billion. The Latin American Reserve Fund gave Ecuador a $618 million loan against the projected $35 billion needed to cover anticipated government spending through 2017.
Dollarizing Ecuador’s currency system failed to address the nation’s political instability, corruption, or the continuously expanding government spending deficit. It did give the US Mint a place to dump its unwanted Sacagawea dollar coins.
By abandoning the physical dollar Ecuador no longer has a fixed amount of actual cash on hand, which is dragging down its ability to increase its deficit spending. By changing to a non-physical cybercash system Ecuador will likely usher in hyperinflation, while the right to privacy of the individual will vanish.
This article was originally printed in World Coin News.
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