Earlier this year Ecuador became the first country to have it’s own official digital currency. Named the Electronic Monetary System (EMS) this currency is set up so that instead of paying with cash, two people who both have EMS accounts can exchange money using their mobile phones. If the implementation of this movement is successful, the benefits of an electronic currency could be far reaching.
How does it work?
It is set up to work just like mobile wallets that have been implemented in other countries. Any Ecuadorian citizen can go to the bank and sign up for an account, the only requirement is proof of identity and that they have a mobile phone from which to use it. From there on, all they need to do is go to the bank and hand in cash, that cash will then be transferred to their EMS account in the form electric monetary units, and they can make payments and transfers to other users.
Why are they implementing this?
An electric currency will be much more easily controlled, and it will be easier to find flaws and keep track of where money goes. Additionally, it should be easier to avoid counterfeiting. As of now, the system is designed to be complimentary to the use of cash instead of completely replacing it, yet digital units do have appeal over cash as they offer a cheaper way to transfer payments and a more secure way to store money. It should also boost the economy because people will now be able to trade further than they would be able to using regular cash. The large portion of Ecuadorians who can’t afford traditional banking were kept in mind during the design of the system.
So, is this is anything like the Bitcoin?
Not exactly, the EMS is only like the Bitcoin in that it is electronic money. But unlike the Bitcoin, which creates new money, the Ecuadorian EMS is backed by the Bank of Ecuador, which means each electronic dollar is backed by a dollar in the bank. The Central Bank has repeatedly stated that each digital dollar will be matched by a physical dollar that the government will hold in reserve. So, this system is not creating any currency, merely using the same currency in another form.
It will take a change of mindset, and people will need to be educated across the country in order for the system to be implemented on a larger scale. But if the system works well, and the people can adopt it, it could have good implications for Ecuador and its economy.