The tiny South American nation of Ecuador has begun its experiment with virtual currencies. The government announced earlier this year that they would be creating a government backed virtual currency in as a way to shore up a sagging economy that is currently being buoyed up by the US dollar.
Cointelegraph reached out to Luis Núñez of the Ecuadorian Bitcoin community for his thoughts on the new program and the potential that Bitcoin and the government’s new virtual currency could co-exist in harmony.
Cointelegraph: When researching our last article about the Ecuadorian government’s virtual currency proposal, it seemed to me that it was simply trying to preserve their control of the money supply and get away from the dollar. Do you agree?
Luis Núñez: Actually, the new Financial and Monetary Law replaces more than 20 laws. It is not a law oriented to ban cryptocurrencies; the law is oriented to strengthen central consolidation over the Monetary and Financial system. The law created a new institution, the Monetary and Financial Council that is part from the executive branch.
This entity has 55 legal functions and enough power in order to take decision over the monetary system. This institution can regulate the management of electronic currency and establish means of payment and units of account. Of course, the Council has enough attributions to ban or to allow Bitcoin.
CT: We have speculated that a government backed virtual currency could not be good for other cryptocurrencies. How accurate is this in relation to Ecuador?
LN: Government has to protect its own initiative, but now Bitcoin is not a big deal for them. To date there is no specific legislation banning Bitcoin. In fact, the Monetary and Financial Council can make Bitcoin completely legal or completely illegal by resolution.
We, as the Bitcoin Community, have made two presentations about Bitcoin at the National Assembly and the delegates that received us had good commentaries and insights about cryptocurrencies and Bitcoin. Besides, the Central Bank utilized the Bitcoin logo in the explanation about electronic money at IAEN (Instituto de Altos Estudios Nacionales). This act has a strong symbolic value for Bitcoiners in Ecuador.
CT: Please give us some idea of where the proposed currency is at now as far as launch date.
LN: Economist Fausto Valencia is in charge of the electronic money system in Ecuador and has prepared a video and slide presentation about electronic money and also has a text explanation of how the system will work. The information is presented in Spanish and can be found at the above links. Also Rodolfo Andragnes came to Ecuador to the launch of the electronic money and wrote an article about it.
CT: Where did the idea of a Federal virtual currency come from originally in Ecuador?
LN: Actually, electronic money was launched at Campus Party on September 19, 2014. Campus Party is the largest technological event in Ecuador. Although it is still in the testing phase the Central Bank is applying a pilot program and talking with enterprises, business and others, so that acceptance is widespread. The rates of service are going to be approved and will end in December of 2014, at which time it will be available to all Ecuadorians.
One interesting fact is that the Central Bank is promoting their system as electronic money, specifically as a mean of payment. But the monetary code talks about an electronic currency with the same legal attributions as the dollar.
CT: How, in your opinion, will this affect Bitcoin?
LN: Digitization is part of the evolution of currency. It is the result of the same monetary and economic principles, but converging with technology.
Electronic currency has advantages over the physical currency such as practicality for the users and reduction of costs for the system. But has disadvantages as the lack of privacy that physical currency really provides to us. With the electronic currency, Central Bank can see in real time how the money is circulating and between whom. This affects the privacy rights of citizens, but it could help to improve government's transparency in the case that we could know public spending in real time.
Those advantages and disadvantages of being digital are the points that could affect or benefit the adoption of Bitcoin. But at the end, electronic currency and Bitcoin are completely different because of their core principles. With the electronic currency, the monetary mass is variable and it was designed so government can control the economy.
“[I]t is not the digitalization of currency, which could directly affect Bitcoin, it is the uncertainty of governments about the possibility of losing control.”
- Luis Núñez
On the other side, Bitcoin has mathematical limitation for the monetary emission in its design, and overall promotes decentralization and it questions the need for a central authority. These are completely different systems from the economic and technological point of view.
For those reasons, it is not the digitalization of currency, which could directly affect Bitcoin, it is the uncertainty of governments about the possibility of losing control. This uncertainty could be expressed on prohibition laws for Bitcoin and the tracking of the digital economic activity of their citizens. Those are the reasons that compel us to act and educate people that make political decisions.
On the positive side, electronic currency will help people to adopt Bitcoin because they will understand that currency is not necessarily something physical.
CT: How can decentralized currencies compete against a government sponsored currency?
LN: First of all, Bitcoin needs to demonstrate being a better and more stable store of value than other alternatives; this probably will take a time, but it will happen. Once this is achieved, people will accept it easily. The medium of exchange and unit of account functions will be progressively adopted, but I think the strength of Bitcoin is in the function of storing value.
Secondly, cryptocurrencies need to integrate additional functions on its applications layer. At the moment, the strength of cryptocurrencies depends on the strength of Bitcoin.
On the other hand, if governments want to naturally avoid the use of cryptocurrencies, they will have to do a good job with their economies and maintain low inflation levels in order to avoid people look for alternative currencies.
“[T]he people are the ones who decide which currency is used, not the law. A good currency does not need a law to be adopted.”
- Luis Núñez
When the economy and currency have problems, governments tend to use stronger laws in order to maintain the control over the currency exchange activity of its citizens. But in the case of Ecuador, our history has demonstrated that at the end of the day, the people are the ones who decide which currency is used, not the law. A good currency does not need a law to be adopted. It is the monetary quality what defines its adoption.
Concretely, Ecuadorians began to informally dollarize economy through the 90´s decade due to the constant devaluation of our national currency and the high inflation levels. In 2000, the economy was formally dollarized, but Sucre continued being the theoretical legal tender in our Constitution until 2008.
In the hypothetical case of an aggressive law banning Bitcoin, it could be a hard disadvantage that only could be countered with decentralization and demand for privacy rights. In a decentralized system, all centralized points are potential weak points. Achieving full decentralization of the entire ecosystem should be like the Holy Grail for Bitcoiners. I think it is an intellectual challenge that needs to be achieved.
At the end of the day, if there is a social consensus to use a determined currency, laws will be changed. We as Bitcoiners don't have to forget that we are citizens too and it is our duty to preserve our rights and share our ideals. We can achieve a world where cryptocurrencies will be free to be accepted in a voluntary way, but first we have to educate our people.
CT: Have there been any Bitcoin specific legislation passed recently or has any Bitcoin accepting merchants received negative reactions from the government, financial sector or banks?
LN: There is no specific legislation banning Bitcoin. There was a particular case of a Bitcoiner that asked Central Bank if he could put a Bitcoin ATM machine in a public place and it was denied. It is a particular response to a specific case.
On the other hand, the Central Bank sponsored our area at the Campus Party. I do not have knowledge about other negative reactions from the government, banks or any other institution to Bitcoiners in Ecuador. If the government wants to ban Bitcoin, it could be easily done by the new Monetary and Financial Council.
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