Mobile currency products such as M-Pesa have taken off, inspiring a number of copycat products around the world.
One of these, however, is slightly different. It's called the Sistema de Dinero Electrónico.
Products such as these are being touted as a great way to bring millions of people into formal finance, whereas they previously wouldn't have such access. Interestingly enough, in this case, Ecuador's government is operating the system.
"We did it from the government because we wanted it to be a democratic product. In any other countries, it is provided by private companies, and it is expensive. There are barriers to entry, like [expensive fees] if you transfer money from one cellphone operator to another. What we have here is something everyone can use regardless of the operator they are using," said Diego Martinez, an economist at Ecuador's central bank, in an interview with FastCoExist.
Using the new program, people can simply walk into participating banks and exchange their money for electric currency, which is storable on their smartphones. That currency can then be used to purchase goods or services. For example, the taxi service in Quito, the country's capital, accepts the digital currency as a form of payment.
So far, around 47,800 people have begun using the new system, with twelve banks on board to exchange currency. Despite this, the system isn't as popular as was expected, largely because of a lack of awareness. This is also due to rumors of the intent of the introduction of the system, with critics saying that the government wants to replace the dollar as the currency, which would end up forcing banks to close their doors.
This is only partly correct. The reduction of the physical dollar is partly the reason for the central bank wanting to use the new system. This is because it costs the government quite a bit of money to bring in extra bills from the U.S. to replace those past their use-by dates. In fact, Ecuador spends as much as $3 million to recirculate currency. Every transaction that takes place, however, still uses actual dollars. Basically, instead of replacing dollars, the government is simply promoting a paperless version of them.
Of course, there are limitations to how many people can use the new system. For example, the poorer people in the country, which might not have a smartphone, will still use physical cash. However, the new system taking off will largely depend on how many banks take advantage of it and promote it in a positive light.
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