What could possibly go wrong?

I just learned that Ecuador, which currently uses the US dollar as its currency, is planning to distribute a new digital currency in December.   They do have a President that has a Ph.D. in Economics, although I don’t know if that’s reassuring or worrying.  Here is one supposed benefit that I’m skeptical about (for a variety of reasons):

With public debt at its highest level since 2010 (roughly 25% of the nation’s GDP), Ecuador’s president Rafael Correa views the digital currency as a way to pay off debt and help poorer Ecuadorians, who are largely cut off from traditional banking.

LOLZ, sounds like Dr. Rafa is tired of not having a seignorage level to yank on. And of course, you can help poor, unbanked citizens without introducing a digital currency, just look at the success of M-PESA  (mobile money) in Kenya!

The whole point of digital currencies is to get out from under government regulation. A government run digital currency is a delicious oxymoron.

The article does mention some very clear drawbacks to the plan, including:

Digital money is also more difficult for people to wrap their heads around and trust.

A centralized digital currency (one controlled by a state’s central bank rather than market forces) may be easier to replicate and counterfeit, says Bonney, so it requires investing in protection from cyber attacks. For example, Bitcoin, the world’s largest digital currency, relies on powerful computers and sophisticated cryptography to stay secure.
For now, the Ecuadorian government has banned Bitcoin in favor of a digital currency it can regulate. 

To say nothing about concerns that the government has put spyware in to monitor all uses of the new currency.

This is either a weird publicity stunt or the beginning of the end of the hard-won low inflation regime in Ecuador. I’m putting .65 of the probability on weird stunt.

What do you guys think


One thought on “What could possibly go wrong?

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