Ecuadorian Banks Must Adopt Official Electronic Currency or Else

By: Belén Marty - @belenmarty - May 31, 2015, 11:10 pm

EspañolWhile companies worldwide are embracing the rise of decentralized cryptocurrency bitcoin, Ecuadorian officials have chosen to make local banks adopt a home-grown state digital currency — whether they like it or not. The nation’s central bank has given them 360 days to get on board, with a mandate in Resolution 064-2015-M, released on May 25 in the official register.

El dinero electrónico avanza en Ecuador, pero impulsado desde el Estado, lo que genera resquemor. (El Comercio)
The administration of President Rafael Correa is pushing forward with its own brand of centralized digital currency. (El Comercio)

The ruling, signed by Economic Policy Minister Patricio River Yánez, establishes that “all entities of the public, private, and cooperative financial sectors are obliged to incorporate themselves as macroagents within the Electronic Currency System.”

The document stipulates that financial institutions will have to provide an electronic tender option for “all the services that they currently offer and those that they will subsequently offer.” Each bank will thus have to open an account with the government-run Electronic Currency System.

Ecuadorian establishes the US dollar as the official currency, under the purview of the Central Bank of Ecuador (BCE). The digital currency will, therefore, be “equivalent and convertible to US dollars.”

The objective of the electronic system is, according to the resolution, “to seek efficiency in payment systems to promote and contribute to the economic stability of the country.”

César Robalino, president of the Ecuadorian Association of Private Banks, told Guayaquil-based newspaper El Universo that his organization has not yet opposed the electronic form of currency as a “payment method exclusively for transactional ends.”

He mentioned that it could be used to finance the public debt, although the administration of President Rafael Correa has insisted that this won’t happen. However, he cautioned that “you can’t create money out of nothing.”

He also lamented that the government had changed its previous stance on making the adoption of the system voluntary for financial institutions.

The resolution gives a sweeping and vague definition of “macroagents” for adoption: “companies, organizations, and public or private institutions; financial institutions of the popular and cooperative system; that maintain a network of establishments available for clients and are capable of acquiring mobile money, distributing it, or converting it into varieties of money.”

As of May 18 this year, 23,927 electronic-money accounts have been opened, according to BCE data.

The mandate on financial institutions to adopt the new system will apply in stages, depending upon the assets they possess. Those that hold U$1 billion and over in assets will have 120 days; those that have between $150 million and $1 billion will have 150 days; and those under $150 million will have 360 days to adopt the new system.

The Central Bank Supplanting Bitcoin?

Gustavo Solórzano Andrade, general manager of the BCE, stated in June 2014 that “the only currency of legal tender in Ecuador is the US dollar … used in all economic operations through payment methods authorized by the Central Bank of Ecuador … in this context, if an Ecuadorian citizen wishes to invest in bitcoins or another cryptocurrency it will be an individual and personal decision, and he will have to do so outside of Ecuadorian territory.”

The superintendent of Ecuador’s Banking and Securities body, Pedro Solines Chacón, further explained the ban by saying that “this cryptocurrency [bitcoin] has no regulating or supervisory body,” adding that cryptocurrencies carry the risk of money laundering and financing terrorism.

But for Luis Nuñez, a member of Ecuador’s bitcoin community, the absence of privacy in the BCE’s electronic money system “is far more worrying.”

“With the electronic currency all transactions are linked to your identity, something which doesn’t happen with physical money, so it seems like a de facto acquired right is being progressively lost,” he told the PanAm Post.

Nuñez further argues that the BCE’s new payment method and cryptocurrencies follow two distinct models: “Bitcoin has a decentralized model that has clear rules: it’s transparent and public, it promotes freedom, and it’s adopted freely; the other is a centralized model that seeks to control information, and in which the rules conform to the political vision of the day.”

Nevertheless, the bitcoin proponent concludes that the state-backed electronic tender wouldn’t affect the the fortunes of bitcoin in Ecuador. Instead, the “legal uncertainty” surrounding the digital currency in the Andean nation is far more damaging.

Translated by Laurie Blair.

Belén Marty Belén Marty

Belén Marty is the Libertarian Latina, a journalist based in Buenos Aires, Argentina. She has lived in Guatemala, Jordan, the United Arab Emirates, and the United States and is a former candidate for local office with Argentina's Libertarian Party. Follow @BelenMarty.

FIFA Scandal Calls for Transparency, Not Government

By: Contributor - May 31, 2015, 9:02 pm

The front pages of leading newspapers around the world are full with news about the alleged corruption in FIFA, the world soccer federation. There are fewer headlines in the United States, where the Justice Department brought a 47-count indictment against key authorities and a handful of businessmen. International attention is assured: soccer is the most popular sport, and FIFA is so large that it has more members than the United Nations. After achieving independence, several countries, especially in Central and Eastern Europe, asked to be affiliated with FIFA even before asking to become members of the United Nations. Among the FIFA officials charged with racketeering and wire fraud were two of the organization’s vice presidents, Eugenio Figueredo and Jeffrey Webb, as well as José Maria Marin, former president of the Brazilian Football Association, and Rafael Esquivel head of the Venezuelan soccer association. Most of the charges refer to activities of the South American FIFA subsidiary, CONMEBOL, and its North American counterpart, CONCACAF. As a good Argentinean, Gustavo Lazzari, an economist and policy advocate with the Libertad y Progreso think tank, follows soccer as much as the battles to preserve the few economic freedoms that remain in Argentina. Argentina was the runner up in the last World Cup, but was ranked 169 out of 178 in economic freedom. Given that Argentineans are so exposed to corruption and soccer, and that he lectures frequently for free-market think tanks on the topic, I asked him about his views. This scandal might refresh the debate about what is more relevant: a world cup of soccer teams or a world cup of national teams He said, “FIFA is the closest thing to a multilateral agency, like the World Bank, but with the additional power to regulate a formidable business. The economic and political appeal, especially when the global contests are organized in countries with weak rule of law, creates immense temptations for corruption.” All the FIFA authorities who were detained were from the Americas, and mostly from countries with weak rule of law. But the fact that the accusations surface after the process that selected Russia and Qatar, with frequent but unproven bribery accusations, assures worldwide attention. President Putin questioned US involvement. Corrupt dealings which damage non-US citizens can still be brought to justice here. In a piece, “How Did He Get So Rich”, I wrote about an Argentinean businessman who ended up in jail mostly because his partner was based in the United States and they used US financial institutions for their dubious operations. In this case, CONCACAF is based in the United States, so there is an additional justification to act. This is not enough to satisfy Putin who, as a piece in Forbes reported, blamed the United States for another attack on Russian interests. What will happen next? Lazzari argues that this scandal might refresh the debate about what is more relevant: a world cup of soccer teams or a world cup of national teams. Libertarian globalists, tend to prefer the former, libertarian “nationalists” prefer the latter. I think there is room for both. Lazzari points out that teams like Barcelona and Real Madrid (Spain), Chelsea (United Kingdom), Juventus (Italy), and many others, have fans and followers across the globe: “Barcelona soccer shirts with Messi’s name, and Real Madrid’s shirt with Ronaldo’s name, sell all over the world, much more than national team’s jerseys.” Messi and Ronaldo play outside their native countries and are some of the best strikers that the world has ever seen. Those who love freedom even more than soccer hope government will not get more involved. Magno Karl, of the think tank Ordem Livre in Brazil, has been highly critical of state interference and subsidies for sporting events. He argues that “the involvement of governments in the game should remain restricted to tightening vigilance over private entities that engage in criminal activities and prosecution of those accused of crimes. It is unlikely that more involvement in the organization of sporting events would produce more accountability. Instead, it would probably produce more US$900 million empty stadiums in developing countries, such as the National Stadium of Brasilia, in Brazil.” Those who love freedom even more than soccer hope government will not get more involved. US civil society and its government are familiar with private sector for-profit and nonprofit sport leagues. Incomes and profits on those events are regulated by the same laws that regulate non-sportive efforts. Violations, therefore, warrant prosecution, even if they might offend Putin. Luis Loria, a think-tank leader from Costa Rica, commented that the revelations and detention of his compatriot Eduardo Li, calls for increased transparency. Loria said “The capture of Li, in Switzerland, has caused a media earthquake in the small ‘Central American Switzerland’ as some label Costa Rica. Until a few month ago, Li was considered as a role model and named the 2014 person of the year by the prestigious newspaper La Nación.” Loria is the founder of IDEAS Network, which is creating an internet platform, “The Crystal House,” to increase transparency in government affairs. Eugenio Figueredo, from Uruguay, one of the FIFA vice presidents also detained, had been accused and suspected before. Uruguay, like Costa Rica, is also regarded as a regional “Switzerland.” FIFA’s president and headquarters are Swiss, so the comparison is not totally unfounded. The battle against cronyism and corruption continues, this time in world soccer. No sector seems immune. Who knows what comes next, but please, counter it with transparency, not more regulations. This article was originally published in Forbes.

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