Ecuador follows Bitcoin ban with digi-currency proposal Ecuador has decided a state-backed digital currency might help it to avoid a financial crisis. Bloomberg reports that the South American nation will implement a fiat digital currency that's to sit beside the US Dollar, its current legal tender. The nation will institute a monetary authority to administer the dollar, the …
" ... it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone."
People who are too poor to have bank accounts or credit cards would be unlikely to have the ability to access the internet to manage a digital currency account. If the government sets up access terminals in public libraries, etc., then why can't they set up a 'bare bones' banking system using existing currency?
People who specifically avoid formally recorded money accounts would run away from a government controlled currency account.
I don't know for sure, but I would not be at all surprised to learn that there's a large group of people in countries such as Ecuador who have mobile phones with at least rudimentary internet access, but who do not have a traditional bank account. I've certainly heard of mobile phone networks in other countries providing banking-like services for their customers.
The digital currency will be backed by the assets of the Central Bank of Ecuador.
Of which there are none. This is just code for "we will issue some more when we need it", thus as any "Central Bank backed currency" it can be had in heaps as large as you want, inflated away, used to pay off the state's debt for peanuts etc.
Just because it is decentralized and something that others can mine, if it is only used for transactions in Ecuador, what is the reason those outside Ecuador should want to use it?
Bitcoin reached critical mass mainly because it was first, and the vast majority of the hundreds of imitators are not worth the electricity consumed to mine them. Why would Ecuador's currency be any different?
It would be different because it'd be the first altcoin to be legal tender. Even outside Ecuador, that could be significant. It would be a foreign currency after all, rather than just some weird digital asset your government hasn't figured out how to handle yet. I can't say who specifically would want that or exactly in what situation, but I do think it would be enough to distinguish it from the others.
I don't know... a unit of a digital currency is a Unique Identifier. With Bitcoins these are mined, but a central bank could just assign them out, 1, 2, 3 etc. All they need is a record of who possesses which ID (like Bitcoin but I assume not exploitable by a 51% power possessing member, ahem) and an API for transferring these. We could stamp pound coins with a GUID and try it ourselves perhaps.
Flaws? A man-in-the-middle attack on the connection between bank and customer could be easily done you would think. Hack the server, all your 'Ecu's are belong to us? Blackout really cripples economy?
So I guess the important question is will be a "Digital Currency" ( a true currency controlled and underwritten by the central bank but paper-/coin-less in some way ) or a "Digital Commodity" like Bitcoin ( a scarce and hard to create mathematical construct with a finite limit that can be directly traded but with no underwriting ).
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