Ecuador’s Congress proposes state-controlled digital currency monopoloy

On Thursday, Ecuador’s Congress will vote on a proposal to create a state-controlled digital currency, and to prohibit the use of any digital currency in the country not backed by the nation’s central bank. Regional news outlet PanAm Post reports that the move was presented by President Rafael Correa as “a matter of urgency,” although the motivations behind that urgency are less clear. The proposal would place control of the digital currency and its regulation under control of Ecuador’s Monetary and Financial Regulatory Committee, although it would be created, managed and maintained by the Central Bank of Ecuador.

Exactly how the proposed digital currency would work is an open question. Ecuador doesn’t have a local currency, adopting the U.S. dollar as the country’s official currency in 2000. As a result, the country’s central bank has little recent experience with managing a native currency, and an unclear path towards creating a digital currency based on holdings of U.S. dollars. Under the current proposal, the yet-unnamed digital currency would be backed by a liquid asset, presumably dollars or other global currency.

Under the current language, the bill would make conducting business in non-approved currencies like bitcoin a criminal offense. The impact isn’t limited to cryptocurrencies, however, as “the circulation and acceptance of all currencies not authorized by the Monetary and Financial Political Regulatory Committee” would be criminalized. It remains unclear if the bill is a strangely over-reactive response to bitcoin’s growing presence in Latin America, or if the goal is more to discourage the further splintering of the already-wobbly Ecuadoran economy as the dollar’s regional influence wanes. It also remains unclear how digital currency denominated in U.S. dollars (as many bitcoin exchanges are) would be impacted, or how such regulation could realistically be enforced in a country with a notoriously active black market.

Local bitcoin activist group, Bitcoin Comunidad Ecuador, has filed a statement of concern about the bill, noting that the proposed state-run currency “must use methodologies that respect fundamental rights,” and demanding that regulators release the currency’s source code to ensure the system’s security and the effectiveness of its privacy protections. The group has also asked that decentralized cryptocurrencies, such as bitcoin, be excluded from the proposed rules.