The world’s first central bank electronic money has come and gone: Ecuador (2014-2018)

Prof Larry White in this piece updates on the Ecuador e-money project.

In 2014 the government of Ecuador, under then-President Rafael Correa, announced with great fanfare that the Ecuadorian Central Bank (BCE) would soon begin issuing an electronic money (dinero electrónico, or DE). Users would keep account balances on the central bank’s own balance sheet and transfer them using a mobile phone app. Enabling legislation was passed in September, qualified users could open accounts beginning in December, and the accounts became spendable in February 2015. A headline on CNBC’s website declared: “Ecuador becomes the first country to roll out its own digital cash.”

The subsequent fate of the electronic money project has received less attention in the American press. Less than three years after opening, the system is now shutting down. In December 2017 Ecuador’s National Assembly, at the urging of President Lenin Moreno, Correa’s hand-picked successor who took office earlier in the year, passed legislation to decommission the central bank electronic money system. The legislation simultaneously opens the market to mobile payment alternatives from the country’s private commercial banks and savings institutions. As described below, the state system had failed to attract a significant number of users or volume of payments. Account holders now have until the end of March 2018 to withdraw their funds. Complete deactivation is scheduled for mid-April.

The substitution of open competition for state monopoly in mobile money is an important victory for the people of Ecuador. The entire episode is important internationally for the lesson it teaches us about the limits to a central bank’s ability to launch a new form of money when the public prefers established forms. 

Hmm…

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