
Ecuador Turning to Virtual Currency - bfwi
http://www.bloomberg.com/news/2014-08-11/ecuador-turning-to-virtual-currency-after-oil-loans-correct-.html
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jordigh
What's virtual about it? I can't tell from reading the article. Is it virtual
merely because none of it will be coins or bills?

Do other such "virtual" currencies exist, i.e. virtual merely because they
only exist in ledgers and bank balances? I mean, other than the vast majority
of US dollars and other traditional currencies.

All this talk of virtual currencies reminds me of how Europeans viewed Chinese
paper money with suspicion when it was first described in The Travels.

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imaginenore
Yes, most US dollars are "virtual" by their definition.

[http://upload.wikimedia.org/wikipedia/en/5/58/MB%2C_M1_and_M...](http://upload.wikimedia.org/wikipedia/en/5/58/MB%2C_M1_and_M2_aggregates_from_1981_to_2012.png)

[http://en.wikipedia.org/wiki/Money_supply](http://en.wikipedia.org/wiki/Money_supply)

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billyhoffman
Given Ecuador's financial situation, this seems like a plan to print money to
pay bills, and make that "virtual" money to saving on printing :-)

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dualogy
That would be incredibly shortsighted. Assuming it's not the case, it's still
a reasonable move: they need to pay their national debts in American dollars.
There's no need for countless dollar notes to be circulating throughout the
country every day for intra-national commerce, anything else that would be
inflated at most below US QE levels would do the same trick and release those
USD notes from that task, hopefully sooner or later trickle them back to the
national treasury in order to send them back to where they originated. Plans
of mice and men, but they gotta give it a try. No country can afford to depend
on the US national currency for too much in the long run.

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AJ007
Presume someone resorting to gimmicks to manage spending in excess of revenue
is shortsighted (intentionally or otherwise.) Borrowing money in a foreign
currency has pros and cons but I suspect most citizens don't realize the long
term consequences.

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bubbleRefuge
My mom is Ecuadorian and I have lots of family there and happen to own
property there.

Correa is a gr8 president, but coming from the perspective of someone like
myself who is well read on the intricacies of modern monetary systems,
sticking with the dollar for this long has been one of the few very bad
policies. From a political perspective its understandable given Ecuador's
history of currency devaluations. This move will very likely permit Ecuador to
continue this economic miracle and transformation that has taken place(lifting
many out of poverty, etc) . These changes should enable Ecuador to increase
GDP , reduce unemployment further, continue to improve public infrastructure,
increase standards of living, and become less dependent on exports to drive
the economy. Hopefully, this will become a lesson to the entire world wherein
electing leaders that are literate about economics and the functioning of the
modern monetary system -Correa has U.S. PHD in Economics- , who don't use
inapplicable house-hold analogies ( i.e. gov should run like house-hold) to
pander to voters ( are you listening EU ? ) can make the kind of strides that
policy makers talk about but never achieve.

Read 7 Deadly Innocent Frauds of economic policy[1] : 1) Government spending
is limited by taxation and borrowing 2) With Government Debts we are leaving
our debt burden to our children 3) Government budget deficits take away
savings 4) Social Security is broken. 5) The trade deficit is an unsustainable
imbalance that takes away jobs and output. 6)We need savings to provide the
funds for investment. 7)It’s a bad thing that higher deficits today mean
higher taxes tomorrow.

[1] From Mosler's book [http://moslereconomics.com/wp-
content/powerpoints/7DIF.pdf](http://moslereconomics.com/wp-
content/powerpoints/7DIF.pdf)

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ddt
Sounds like they're doing something closer to URVs [1] than Bitcoin.

[1]:
[http://en.wikipedia.org/wiki/Unidade_real_de_valor](http://en.wikipedia.org/wiki/Unidade_real_de_valor)

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gus_massa
At the same time, here in Argentina we invented the Convertibility: "One Peso
equal to One Dollar"
[http://en.wikipedia.org/wiki/Argentine_Currency_Board](http://en.wikipedia.org/wiki/Argentine_Currency_Board)
The main difference is that here the pesos were always "actual" bills, but the
real started as "imaginary" bills.

It worked initially (better than I expected), but we have an inflation that
was 1% or 2% over the dollar inflation. So after 10 years we have a 20%
difference in price, but we maintained the "One Peso equal to One Dollar"
until it exploded. IIRC in Brazil the transition from 1-1 to 1-X was softer.

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moron4hire
I've only been to Ecuador once, but it seemed like people in general didn't
trust the government and thought it was corrupt. If that is the case,
Ecuador's problems wouldn't be monetary or fiscal at all, it'd be that they
have a bunch of crooks robbing them blind.

It always seems like it's my lay-about, heavy-drinking, multiple-DUI-
offending, chain-smoking, new-car-on-lease-every-two-years cousins who have
the most trouble with money. I once saw one of them chug the leftover half of
a bottle of whiskey, smash it over the back of his truck (oblivious to the
damage he did to the tail light) and scream, "That's how we DO!" Yeah, you
have no idea how truthfully you speak, you idiot. And those three kids by two
women you had out of wedlock are the ones who suffer the most for it. But
"live fast, die young, and leave a beautiful corpse," amiright!?

If you don't get the analogy, my cousin is corrupt government, the kids are
the people they govern. I'm not in general calling Ecuadorians drunken
layabouts. And I'm not saying I specifically know this is the problem. I'm
just saying, money is a communication of value, so if you have money problems,
you most likely have value problems.

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evbogue
Perhaps a smarter idea for Ecuador is to take all of the USD they're
circulating and convert it into an existing and proven cryptocurrency. While
becoming the best place in the world for a unhindered exchange of USD --> BTC,
they'd also not have to worry about all of the problems of building and
administering a centralized virtual currency from scratch.

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EduardoBautista
Imagine you buy a house worth 100k one day in bitcoin. The next day, bitcoin
increases its value 25%. That same house is now worth 75k, but you still owe
100k plus interest.

This is one of the biggest flaws in bitcoin that people just can't seem to
understand (or just don't _want_ to understand). You can't have a good loaning
system with an unstable currency.

Edit: I posted a better explanation below:

"You take out a 100k mortgage in USD. Over the next year, the USD suffers
suffers from extreme deflation (increases in value). It is now worth twice
what is was worth last year. As a consequence, wages begin to go down. Now
let's say you were earning 50k a year while paying down a 100k mortgage (not
assuming a downpayment, this is for simplification). Next year, you are now
being payed 25k but still owe that 100k mortgage. And the house is now worth
50k."

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CodeMage
I don't understand. Did you buy a house in BTC or in USD? If you bought it in
USD, then the value of it in USD hasn't changed. If you bought it in BTC, then
your debt is in BTC. What am I missing?

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EduardoBautista
If you bought it in BTC, the house is now much more expensive then when you
originally bought it.

~~~
CodeMage
It's more expensive in USD, yes. Which is a problem if you're being paid in
USD, instead of BTC. In other words: if your debt is not in the same currency
as your income, that might be a problem. Is that what you're saying?

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lucb1e
> A monetary authority will be established to regulate the money

I suppose I should not have been so excited. The title really does read a
"virtual" currency and not a cryptography-backed cryptocurrency.

This isn't what it sounded like, it's just like Paypal except the government
is in charge.

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rhino369
You can have a cypto currency controlled by a central bank. In fact, we'll
probably have them eventually. It would have a lot of the benefits of a cypto,
like instantaneous transfer, without the drawbacks like major volatility.

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mr_luc
Oh, boy.

I have a house in Ecuador. I am a fan of Bitcoin. And I am, on the whole,
probably still a fan of Correa.

But ... yikes.

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salibhai
51% attack, anyone?

~~~
jordigh
The article is scant on details the actual currency, but it doesn't sound like
they are intending to make it decentralised nor a cryptocurrency.

