Electronic money & will it eventually devalue your dollar?

SawMan wrote:

Imagine Ecuador depositing 500,000,000 into retirees' accounts.  Where did it come from?  Cyberspace.

SawMan has discovered El Supremo's ace in the hole for the next election.

Of course, we're talking about Ecuadorian retirees, not Expat retirees.

  -- cccmedia, Quito campaign manager, Draft Nards Barley For Presidente 2017

Sawman:

Well said. That has been exactly my concern ever since I first heard about this idea.

I don't know that that is what is going to happen, but it will be a huge temptation to a government that is facing budget deficits, and governments (throughout the world) are usually weak-willed when it comes to resisting such temptations.

CCC look at this web page from Banco Central  http://www.dineroelectronico.ec/ you can click on many things and also see just who is using it right now. Also if you read the govt reason for this "cell phone" money you will see their #1 reason is to let poor people and women have access to money transfer or to pay with the cell phone.. If the poor do not have access to a bank maybe it is because they only want to deal in cash. How many in poverty even have phones? Makes you wonder if the govt is telling the whole thing. It is still necessary to go to a bank or other charge place and put cash in the account. They say it is free but there is an transaction charge of .15 Just does not make much sense to me after reading the whole site on Electronic money! After you read it please tell me your thoughts.

http://www.dineroelectronico.ec/ Read this totally and you will be much better informed. I think, if you can believe it all! It will explain what the govt is doing (maybe) And what they say they wont do. It appears that they are doing it for the benefit of the poor and women who do not have access to bank accounts.

@Sawman and BobH. Excellent points, and valid concerns you both make.

@Cuenca boy. I took a closer look at the website you gave. Can't at this point in time really see anything that positive, or that negative to say. All things considered, not really sure this new system is really necessary. As you pointed out in another post. Could pretty much accomplish the same goal by encouraging the various groups this is aimed towards to just open a bank account. Hey, just bring in a few bank representatives into some of the smaller poorer pueblos, and let them talk to the locals. Encourage them to open a bank account, and maybe start a small savings account, or something like that for their kids. While at this point don't really see this as a terrible system. Also don't really see it as being much of a benefit for those it's supposed to help the most.

Of course the skeptic in me also wonders if the long term goal is to eventually force this on all Ecuadorians. But that's just the skeptical part of me. Not saying that's going to happen.

J you hit it right on the head! I agree that this new system seems not necessary. As you probably read on the link I sent you, it all seems innocuous. The govt says they will not ever back the funds with govt bonds. Or pay govt contractors with this. Only backed with cash held in reserve. The way it all reads I am sure gringos have nothing to worry about. This whole thing is "apparently" designed to help the poor people as it is stated on the link. I for one am not going to worry.

I have been here in Cuenca for 4 years now and in general am happy with this Republic with Napoleonic (civil) law. It take a while to get used to the culture but I have and can not really complain. Ecuadorians are generally friendly people. If you try and speak the language as I do, you can get along just fine. Remembering that "tomorrow" may mean tomorrow next week helps also. It also helps that my wife is Colombian. She has had to get used to the Ecuadorian culture also. Things here are different than Columbia as well.

Take care

Cuenca boy wrote:

Banco Central  http://www.dineroelectronico.ec....you will see their #1 reason is to let poor people and women have access to money transfer or to pay with the cell phone.. If the poor do not have access to a bank maybe it is because they only want to deal in cash. How many in poverty even have phones?

If I was in their targeted group -- citizens without bank accounts -- I'd just keep using cash for a while until I was satisfied on two fronts:

1.  That my fellow citizens who participate in the roll-out are as protected from hackers and cell-phone thieves as the "Proteger" web page contends.

2.  That the participants are getting enough on-going value from the e-Money that it's worth the trouble of going through the steps.

From the point of view of this targeted group, the benefits will have to be compelling, with no perceived risks.  Why buy a cell-phone, pay 15-cent usage fees and mess with the bureaucracy, when using cash is so easy and familiar?

cccmedia in Quito

cccmedia wrote:

Why buy a cell-phone, pay 15-cent usage fees and mess with the bureaucracy, when using cash is so easy and familiar?
cccmedia in Quito

Exactly the reason it will not work

This article in The Guardian says there are only 8,000 sign-ups so far.
http://www.theguardian.com/world/2015/f … ael-correa

That's not many, but it is also very early. The government says they expect 500,000 users by the end of the year, and I think we will have to wait several months to see if there is much progress toward that goal. The system cannot work unless there is a critical mass of users and of businesses accepting payments.

Whether or not it's successful in terms of usage is, of course, a separate issue from my skepticism about how the government might abuse it.

smell the roses wrote:

I agree with so much in this post. For even more security and peace of mind Banco Pichincha is the oldest and largest international bank in Ecuador. When there was a financial crisis and some of the banks went under Pichincha was able to buy their assets. They only pay 4.5% interest on investment visa cds but return of principal is more important than return on principal.

Have you taken a look at Pichincha's financials of late, especially bad debt on books? I would better recommend Banco Internacional, Banco Bolivariano or ProduBanco.

Lots of excellent advice.  Now a few months later, how are things shaking out?  Oil prices are even lower, increasing pressure on Correa to continue borrowing billions from China, or drastically cut social spending (won't happen, he's looking to be president for life.)  Virtual currency is slowly being introduced.  Correa is ranting against the U.S. dollar as it's official currency, accusing the U.S. govt. of trying to destabilize the Ecuadorian govt.  This scenario has played out in other countries many times before.  I love Ecuador and its people, but I have drastically reevaluated my plans there over the last 6 months.  I had planned on buying real estate, both residential and commercial.  I shall now lease instead.  It's true that inflation will rear its ugly head.  60% as in Venezuela?  Probably not, but how much pain can the citizens stand?  How about this scenario:  Correa is reelected, emboldened by his iron grip on the country, makes virtual currency the "official" currency of Ecuador, although backed by who the hell knows what, and declares it on par with the U.S. dollar.  You decide to sell that piece of property you've owned for a number of years, expecting a nice return on investment, and you get it, paid into your mandated federal banking account with virtual currency.  Now what?  Correa has made it clear he wants to keep currency and cash flow in Ecuador, so to convert your virtual currency into dollars and then transfer it out of the country will cost you..............20%, 40%..........who knows?

Read my previous post!! The "virtual money" as you call it is not!! It is a cell phone system and has to have "Cash" to load the account!! It pays to do a little research!!

I'm not negative about the future here. I was just talking to a local today about the future of the dollar here. His opinion is that the dollar is not going to be replaced and that the new electronic currency will remain backed by the dollar. I have read that President Correa does not like having the economy tied to the dollar. Since he is an economist he understands the constraints the dollar provides on the govt. control of the economy here. Of course, he would have more options in stoking or cooling the economy here if it wasn't dollarized. But, I think everything in Ecuador has improved so much since he took office and the dollar was implemented that he can't drop the dollar. The locals give Correa a lot of credit for the improvements here but also relate it to dollarization. The gentleman I was talking to today also says that the locals were always confused with the sucre when its value fluctuated against the dollar. Correa has been quick to react to the drop in oil prices and the strong dollar by cutting the budget and raising import taxes. While some of this may have been too aggressive, he seems willing to adjust his approach quickly when the results aren't what he expected. Good intentions combined with the ability to change your approach when conditions change are a good recipe.

"Table Beer" get informed before writing about what you don't understand! Go to the link I put in before for the Banco central. The "virtual currency" Is not virtual!! It is electronic! Accessed with a cell phone to an account you set up with "Cold hard Cash"!! The govt will not be paying any one with this. It is for the poor and women. Only 40% of Ecuadorians have bank accounts. Read the link and get educated!

smell the roses wrote:

I'm not negative about the future here. I was just talking to a local today about the future of the dollar here. His opinion is that the dollar is not going to be replaced and that the new electronic currency will remain backed by the dollar. I have read that President Correa does not like having the economy tied to the dollar. Since he is an economist he understands the constraints the dollar provides on the govt. control of the economy here. Of course, he would have more options in stoking or cooling the economy here if it wasn't dollarized. But, I think everything in Ecuador has improved so much since he took office and the dollar was implemented that he can't drop the dollar. The locals give Correa a lot of credit for the improvements here but also relate it to dollarization. The gentleman I was talking to today also says that the locals were always confused with the sucre when its value fluctuated against the dollar. Correa has been quick to react to the drop in oil prices and the strong dollar by cutting the budget and raising import taxes. While some of this may have been too aggressive, he seems willing to adjust his approach quickly when the results aren't what he expected. Good intentions combined with the ability to change your approach when conditions change are a good recipe.

Having the dollar as the national currency definitely restricts what Ecuador can do to a certain extent. Both pros and cons to dollarization. Do the pros outweigh the cons, or vice versa? Tend to believe the pros outweigh the cons. It's a tough call to say which way the economy, and future of Ecuador will go?
Realistically, think you could make a fairly strong case no matter which side of the coin you're on. So many things can happen that swing things in one direction or the other. People want things to be black, and white, but they rarely are. Clearly there is some glaring challenges facing Ecuador's economy, and future at this time. Life is always about evaluating, adjusting, and adapting to the current environment. Time will tell how Ecuador will fare in that regard.

You are "informed"!! right on analogy!!! This site needs more like you that take the time to get informed!!

Time will tell, won't it?  Time will tell.

Cuenca boy wrote:

You are "informed"!! right on analogy!!! This site needs more like you that take the time to get informed!!

Many authors (not just posters on this blog) are stating to all of us that what the government says and what it may do can and often are two different things.  Don't swallow hook, line and sinker what you've read from government news releases. Folks are quite astute to see the potential misuse of electronic funds by the government in a USD denominated economy.  You might be a bit naive.

Naive?? Maybe you are paranoid! The system is defined as a "pay as you go".  Cash!! You could post a doomsday idea, but this is a well run government in Ecuador. Granted. Anything might happen but it is not likely!! Have you nothing better to do than sit and think negatively?? You could go back to the coziness of the states. As for me I will continue to live the rest of my retired life here in comfort!! At this post I am through trying to banty words with " so called " smart??? Gringos. To many unhappy expats!!! With no clue!!!

Cuenca boy wrote:

Naive?? Maybe you are paranoid! The system is defined as a "pay as you go".  Cash!! You could post a doomsday idea, but this is a well run government in Ecuador. Granted. Anything might happen but it is not likely!! Have you nothing better to do than sit and think negatively?? You could go back to the coziness of the states. As for me I will continue to live the rest of my retired life here in comfort!! At this post I am through trying to banty words with " so called " smart??? Gringos. To many unhappy expats!!! With no clue!!!

Calm down and take a deep breath.  You're getting way too excited.  It's not helpful to your stated goal of living a long life in comfort!

Hi everybody,

Can we please talk calmly here? There is no need to fight, we are only here to discuss about electronic money.

Thanks

Priscilla 

Ecuador seems to be seeking numerous loans from China and elsewhere, which may have an impact on the direction the e-currency takes (and how the government uses it). All this is of course tied in with oil prices.

Ecuador got $924 million in previously undisclosed loans from Deutsche Bank AG and other lenders, showing the extent of President Rafael Correa's effort to line up a record amount of financing as oil prices plunge.  (...)

The 50 percent drop in oil prices over the past 12 months has pushed the Andean nation's financing needs to a record $10.5 billion this year, prompting Correa to court banks, international debt investors and foreign governments to make ends meet.

The above quote is from Bloomberg. There's more about this on my blog.
http://adventuresbob.blogspot.com/2015/ … uador.html

BobH wrote:

Ecuador seems to be seeking numerous loans from China and elsewhere, which may have an impact on the direction the e-currency takes (and how the government uses it). All this is of course tied in with oil prices.

Ecuador got $924 million in previously undisclosed loans from Deutsche Bank AG and other lenders, showing the extent of President Rafael Correa's effort to line up a record amount of financing as oil prices plunge.  (...)

The 50 percent drop in oil prices over the past 12 months has pushed the Andean nation's financing needs to a record $10.5 billion this year, prompting Correa to court banks, international debt investors and foreign governments to make ends meet.

The above quote is from Bloomberg. There's more about this on my blog.
http://adventuresbob.blogspot.com/2015/ … uador.html

Not really in the ideal economic position at the moment are they? Goes back to a point I made in some thread awhile back, and that is basically let's see how Correa, and Ecuador handle things when oil drops, and the economy starts to slow? Am not taking a pro or con position, but am realistic, and practical enough to realize that over the next few years is when we will find out exactly how well off, or not Ecuador really is.

j600rr wrote:

Not really in the ideal economic position at the moment are they? Goes back to a point I made in some thread awhile back, and that is basically let's see how Correa, and Ecuador handle things when oil drops, and the economy starts to slow? Am not taking a pro or con position, but am realistic, and practical enough to realize that over the next few years is when we will find out exactly how well off, or not Ecuador really is.

Yep. I've made the same point -- Ecuador had two commodity booms in the 20th century -- cacao at the beginning of the century and bananas mid-century. Both followed the same pattern (and a pattern seen in lots of similar countries) -- during the boom, everybody's happy, they love the presidente, and there's stable government because there's lots of jobs and plenty of money passing through the economy.

But of course, for every boom there's a bust. and the cacao and banana busts were followed by instability and coups.

Not saying an oil bust will lead to the same thing, but it could if things aren't handled carefully. We'll see.

BobH wrote:

j600rr wrote:

Not really in the ideal economic position at the moment are they? Goes back to a point I made in some thread awhile back, and that is basically let's see how Correa, and Ecuador handle things when oil drops, and the economy starts to slow? Am not taking a pro or con position, but am realistic, and practical enough to realize that over the next few years is when we will find out exactly how well off, or not Ecuador really is.

Yep. I've made the same point -- Ecuador had two commodity booms in the 20th century -- cacao at the beginning of the century and bananas mid-century. Both followed the same pattern (and a pattern seen in lots of similar countries) -- during the boom, everybody's happy, they love the presidente, and there's stable government because there's lots of jobs and plenty of money passing through the economy.

But of course, for every boom there's a bust. and the cacao and banana busts were followed by instability and coups.

Not saying an oil bust will lead to the same thing, but it could if things aren't handled carefully. We'll see.

Would think, and hope Ecuador is in a bit better position than they were from those 2 previous cycles you mentioned Bob. They have tourism, and some other industries that have good growth potential. They have the advantage that with interest rates so low in the U.S., and other first world countries, that investors are willing to take a chance on buying foreign debt because of it's potential returns. Think that overall they are in better shape than the past, but don't really think they were in nearly as good a shape as they want, and wanted everyone to believe. However would agree that if things aren't handled carefully they could spiral out of control quite easily.

"Would think, and hope Ecuador is in a bit better position than they were from those 2 previous cycles you mentioned Bob. They have tourism, and some other industries that have good growth potential. They have the advantage that with interest rates so low in the U.S., and other first world countries, that investors are willing to take a chance on buying foreign debt because of it's potential returns. Think that overall they are in better shape than the past, but don't really think they were in nearly as good a shape as they want, and wanted everyone to believe. However would agree that if things aren't handled carefully they could spiral out of control quite easily."

Spot on j600rr...and, added to that, the current Presidential leadership, in Ecuador, has put the broader population first, ahead of limited special interests, in terms of economic prosperity...and has diligently battled against those feeding at the corruption trough, rather than join in along side them. Night and day different, but still something an adept President and economist must handle well, in order to avoid major economic fallout. Minor economic fallout is about a "given".

Has there been any new news on the digital currency in Ecuador? Tried searching online, and couldn't find any current news/updates. Had completely forgotten about this subject on my last visit to Ecuador, but there  wasn't anyplace I went using the digital currency to my knowledge. Everywhere was using good old fashioned cash.

j600rr wrote:

Has there been any new news on the digital currency in Ecuador? Tried searching online, and couldn't find any current news/updates. Had completely forgotten about this subject on my last visit to Ecuador, but there  wasn't anyplace I went using the digital currency to my knowledge. Everywhere was using good old fashioned cash.

There was this https://www.cuencahighlife.com/governme … ces-backs/

I see stores or restaurants around town that put up signs that the government prints announcing that the digital currency is accepted. I have yet to actually see anyone using it.

Maybe I will install the app on my phone and put $10 into my account, just as a backup.

https://play.google.com/store/apps/deta … emicelularhttps://efectivo.ec/

Edit: Check that. That app just tells you how and where you can use it. I thought it might work like my PayPal account which gives me my balance.

Would appear there is not much interest in the currency at this point in time from the article you linked Nards.

On a side note has anyone been paying attention to what India has done with their currency? That's turning into a pretty big disaster.

Nards Barley wrote:

j600rr wrote:

Has there been any new news on the digital currency in Ecuador? Tried searching online, and couldn't find any current news/updates. Had completely forgotten about this subject on my last visit to Ecuador, but there  wasn't anyplace I went using the digital currency to my knowledge. Everywhere was using good old fashioned cash.

There was this https://www.cuencahighlife.com/governme … ces-backs/

I see stores or restaurants around town that put up signs that the government prints announcing that the digital currency is accepted. I have yet to actually see anyone using it.

Maybe I will install the app on my phone and put $10 into my account, just as a backup.

https://play.google.com/store/apps/deta … emicelularhttps://efectivo.ec/

Edit: Check that. That app just tells you how and where you can use it. I thought it might work like my PayPal account which gives me my balance.

In Quito, as far I can tell, nobody is using e-money, talking about it or advertising they will take it.

This issue has about the same probability of affecting any Expats as El Supremo reopening the casinos in his final three months in office.

In other words, don't bet on it.

cccmedia

Nobody I know here on the coast is using it or accepting it.

And by nobody, I mean shops, stores, lodgings, and restaurants in Montañita and Olon and the same for the Salinas areas.  SO that is pretty much the provincia of Santa Elena.

I didn´t in my business owning a hostel either. It´s cash (effectivo) here and even that is questioned if you have a $1 or $5 with a tear or any bill $50 and up.

I know of nobody around Guayaquil who will accept it also, nor anybody who uses or has an account.......

Well, since J600's first post this week, we've tallied reports from Cuenca, Quito, Guayaquil and the Pacific Coast.  Nobody has seen activity in e-money in Ecuador.

Unless someone from the Vilca/Loja area -- or non-Expat venues such as Santo Domingo, Lago Agrio or Nalgas del Cerdo, Sucumbíos -- reports there is e-money is use, it's a clean sweep:  Nobody's been seen or heard of .. using the ‘stuff.'

cccmedia

cccmedia wrote:

Well, since J600's first post this week, we've tallied reports from Cuenca, Quito, Guayaquil and the Pacific Coast.  Nobody has seen activity in e-money in Ecuador.

Unless someone from the Vilca/Loja area -- or non-Expat venues such as Santo Domingo, Lago Agrio or Nalgas del Cerdo, Sucumbíos -- reports there is e-money is use, it's a clean sweep:  Nobody's been seen or heard of .. using the ‘stuff.'

cccmedia

Yep, would say my question has been answered. Though Nards did say he's actually seen signs for it. No one else seems to have even seen any mention of it. It's hard to beat the ease, and simplicity of using cash. 1,5,10,20,50,100, and pretty much majority of time only 1,5,10,and 20's are used. Stick a few cash bills in pocket, and are all set. Doesn't get much easier than that.

@j600rr

I may not be in use yet but the table has been set has it not?

You're probably heard about the War on Cash. It's here.

You may not have been following this story but it's quite an eye opener. On November 8 this year India's prime minister Modi announced that 86% of the currency bills circulation were being cancelled. No warning no notice, right here right now.

India's people were instructed that the cancelled notes had to be taken to a bank or post office within a certain short time and deposited and that these deposits must be accompanied by official ID. According to most of what I've seen 50% of India's people don't have a bank account or electricity or plumbing, 25% have no official identification. This is in a country of 1.3 billion people, some of the poorest in the world. Over 90% of the county's economy operates on cash.

Modi claims India will move into the digital age of finance - for which there is little infrastructure and even less access. And the usual BS about cash and crime.

Obviously this is nothing less than a wealth grab by the government and by the banks. Lock that money in the system.

Even now in Greece whose banking system was shut down by the ECB in summer 2015, it is still only possible to get 75 euros a day in cash. You can buy anything you want for any price, but above 75 euros you'd have to pay for it with a plastic card. Your money is locked in the digital banking system.

Not to mention the surveillance and tax extraction bonus electronic money provides for government and data bases everywhere.

I could rave on.

Since Ecuador has already codified such a system in the country's finance structure, I feel sure the day will come when they will put it in action one way or another. It could be brutally like India or by some method less tragic.

If you're as fascinated by this forced cashlessness as I am, this guy has written a series of very good articles and done some videocasts on it. Highly recommended.

Jayant Bhandari, India's Currency Ban, Part VII
http://www.acting-man.com/?p=48196

Thanks for that link gardener. Knew there were problems, and things were probably going to get ugly, or uglier, but looks like unfortunately they are going to get real, real ugly. And of course, the poor that this is all supposed to be for will be the ones most harmed.

While it is true there is a global war on cash.......it seems to me that Ecuador's electronic money is a way for the gov to "print"  money which, unlike the USSA, cannot simply print more money.
The wonders of fiat currency.....backed by NOTHING other than faith and credit.......

Those who fail to remember history are condemned to repeat it.

AMDG wrote:

While it is true there is a global war on cash.......it seems to me that Ecuador's electronic money is a way for the gov to "print"  money which, unlike the USSA, cannot simply print more money.
The wonders of fiat currency.....backed by NOTHING other than faith and credit.......

Those who fail to remember history are condemned to repeat it.

Don't disagree with any of the above AMDG, but I'll play devil's advocate, and ask what type of monetary system would you recommend for society? Certainly there is some major flaws to a fiat currency, and I don't pretend to have the answer to the question. The way I see it, there will always be flaws in any type of monetary system. You could go back to precious metals, but considering the population, and amount of daily transactions in todays society, don't think that's practical. Could go back to the gold standard, and maybe we should never have alienated the gold standard, but again, am not sure going back to a gold standard would be practical at this point in time. Probably the purest, and most honest would be to go back to a barter type system, That would probably work well for small communities, but on a larger scale probably wouldn't work. Could maybe go back to something like e-gold used to have. That could possibly be viable. Please don't take anything I said the wrong way, am not trying to debate, or challenge you in anyway. I just don't see any type of monetary system that's not going to have inherent flaws. Not saying there isn't a solution, but haven't seen one yet that will work perfectly for the society we live in today.