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Private banks balk at joining Ecuador’s electronic money system

Although the government needs their support, Ecuador’s private banks say they lack confidence in the Central Bank’s electronic money system.

An account holder takes a tutorial of the Central Bank’s new electronic money system that will operate by cell phone.
An account holder takes a tutorial of e-money.

Julio José Prado, president of the Association of Private Banks (ABPE), says bankers have two major objections: the administration of the system by Ecuador’s Central Bank (BCE) and language added to recent legislation that may leave e-money unsecured.

“We cannot at this point support any financial program that is administered by the BCE since we have no confidence that it is secure,” Prado said.

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He adds that part of the lack of confidence is because bankers cannot be certain that e-money will be backed, dollar-for-dollar, with hard cash. “Language added to the Solidarity Act (that recently raised the VAT rate to 14% from 12%) suggests that the digital money will backed only by government assets, not by real dollars,” he said. “This is not acceptable to us.”

Since it became operational last year, the electronic money system was been met with apathy by the public. While the government expected that Ecuadorians would open 500,000 accounts by the end of 2015, it only boasts 66,000 as of the end of April 2016.

Another obstacle for the system is a lack of  businesses who accept electronic money transactions. Many of those that do say they get few requests to use it.

Eager to encourage participation in the system, the National Assembly included a 4% discount on the VAT for electronic money purchases in the recently passed Solidarity Act. President Rafael Correa has yet to sign the legislation.

The electronic money system would operate on cell phones.


22 thoughts on “Private banks balk at joining Ecuador’s electronic money system

  1. Private banks here lack confidence in the e-money system; good, so do I. Stay with cash; avoid e-money as best you can.
    The U.S. banks are talking of giving their customers “negative interest rates.” This means, you give them $100, and next year, you get $99 back. You lose money by putting your money into banks. With cash, you can stash your cash into a piggy bank at home; with e-money, you can not, and the banks will take your $1 anyway. E-money is bad. Stay away.

    1. John, we were looking for you over on the safety thread. Glad to see you’re okay. I’m sure you have noticed that this is one of the few times I’ve actually given you a thumbs up.

  2. How can a government (Ecuador), who is in so much debt, try to rally confidence in this type of system. Maybe Ecuador should change from the dollar to the yuan (Renminbi).

    The official currency in China is the Renminbi (RMB or CNY) or in Chinese “Ren-min-bi”. The basic unit is the yuan.

    The more I hear stories like this the less confidence I have. Just how safe are the real USA dollars that I have deposited here in Ecuador?

    1. Look at the interest rates in Ecuador, look at the interest rates in other countries, and you know how save your dollars are in Ecuador.

    2. The larger question isn’t how safe deposited dollars are here in Ecuador. It’s how safe is the U.S. dollar itself. Countries all around the world are dropping the dollar as the Reserve Currency and there is abundant evidence that the U.S. government is secretly preparing for its demise within the next 18 months. People who regard this as conspiracy theory don’t know their history. The dollar has lost 96% of its value over the past hundred years. “Going to zero” simply means it will lose that last 4%.

      The owner of Wunderbar, off Calle Larga, wallpapered the back of his bar with currencies from a variety of countries whose currencies have gone bust. It’s more than artistic. It’s highly instructive. He will soon be able to add the U.S. dollar. As Mark Twain once said, “History may not repeat itself, but it sure does rhythm.”

      Or perhaps Voltaire was more to the point : “It is the destiny of all fiat currencies to return to their original value. ZERO.”

      1. Greg, I saw this written here by another poster in this publication and he was commenting on the relative security of Ecuador and I liked it so I’m stealing it here and will adapt it for my own use:

        The U.S. Dollar may be the best house on a bad street. I know you know that fiat currencies are inherently worthless and dangerous based on what you have written. Harry Browne taught me that decades ago along with Ludwig von Mises and the Austrian School boys. However, as long as they are in use, their value is a relative proposition. While I’m not sanguine about any fiat currency, there are those that believe that the dollar, over the short to medium term (in other words, before any of the fiat currencies collapse) could soar. I just posted a link to a big time short seller named John Burbank. Here’s the link again. At least read it and consider it:

        1. Then you are supposed to use the sarcasm font on your computer. Alternatively, just do this: so challenged guys like me get your point.

  3. By “real USA dollars”, do you refer to those scraps of paper with the green ink, the Federal Reserve Notes?

    You have a great sense of humor, George.

    1. As far as I am concerned, nothing is safe anymore. Paid for rental properties is the only thing I even remotely trust, with a little gold and silver and a gun buried in my back yard.

      I have to have $25000 USA dollars deposited in an Ecuadorian bank for my Visa. I don’t ever expect to see that money again. But if I do, I will use it to buy a 2006 Porsche 911 SC4. A million dollars worth of fun at a huge discount.

      The world has gone mad and I don’t trust any of you.

  4. Electronic money being promoted by the EC government and backed only by government assets. Hmmm! What assets are we talking about? Do they mean the same assets backing the existing, outstanding, high interest loans with undisclosed terms held by foreign governments? Established EC banks have no confidence in the government e money program, so why should we? The 4% discount “lure” is really cheesy. This program is “sting operation” to grab cash, nothing more.

  5. A blockchain-based system would work perfectly, because it provides ‘distributed trust.’ In other words, everyone connected to the electronic currency ‘web’ has an encrypted copy of every transaction from everyone on their computer. No one person can read the contents of the blockchain (except for transactions they personally carry out), but this ‘distributed ledger’ is everywhere, so no one can secretly alter anything, and if they do try, there are millions of backup copies available to not only self-correct the ledger, but also identify the tamperer.

    Think about it. The only reason one uses a bank is becuase you ‘trust’ them to manage your money properly, honorably, ethically, when you pay money to others, accept money from others, etc. But the fact is that you probably don’t personally know anyone at the bank, or in the government that controls the bank, so any number of these weasels could potentially muck with your money, payments, profits, accounting, or even just change the rules of the game as they desire. You have no say.

    So, why not eliminate the bank completely and be done with them? And why not get the gov’t out of your personal financial business at the same time?

    The most elegant, practical and freedom-enhancing aspect of the blockchain is that no central authority has control over it. In a practical sense, ‘everyone’ has a stake in it/control of it (i.e. everyone takes part in it), yet ‘no one’ can tamper with it. Beautiful.

    As distributed trust systems take over banking, accounting, real estate transactions, and hundreds more applications, we can all get used to trusting our excahnges with each other, while eliminating the control freaks of banks and government.

    1. Ah, and this from my favorite Libertarian, BDev.

      BDev, I take no technical issue to your post, but even if we were to grant, arguendo, that it is sound, who on earth is actually going to compare encrypted symbols to ensure than nobody has monkeyed with the transactions? Which of you will give up watching American Idol (or sitting on that bar stool in the gringo bar) to review these arcane postings? I think you may be overlooking the strongest force on earth———— inertia. You know, the force that keeps people sitting on their metaphorical and collective asses instead of doing something intelligent or productive.

      1. Inertia… Hmm… good point. 😉

        In any case, I will continue to plug for common sense, real adulthood and

        Self-reliance/Voluntary cooperation in all human affairs. Maybe, against all odds, humanity is actually capable of permanently rising up and beyond its current state of complacency? Feels good and right to me. I am allowed to encourage people to grow up and think for themselves, yes? 🙂

        1. Amen. Absolutely. Look at the political situation in the U.S. I just saw an interesting piece on CNN yesterday that showed that disgust with the two statists being foisted by the two major parties, has risen to such a level that 12% of those polled said they would vote for a Libertarian without even knowing who they are. It is likely that it will be Gary Johnson with William Weld as his running mate. Let’s see what happens.

    1. He hasn’t signed it yet but said he probably will. You’re confusing it with the bill to raise taxes on cigarettes, beer, phones, etc. — he did sign that one.

  6. Good! Any bank signing up for this scam will PAY. It is NOT transparent and there is no public oversight or even accountability. This is merely Correa’s thinly veiled attempt at becoming the Rothschild/Rockefeller of South America. Anyone not seeing this fact is a fool.

    If Correa gets this power, his family will control Ecuador forever, no matter where they live in Europe. SMH

    Why do you think he hates Bitcoin so badly?

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