Ecuador to Adopt Digital Currency
Economist Bill Black says Ecuador’s plan is supposed to provide bank services to rural communities through mobile phones
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore. And welcome to this edition of the Bill Black report.
Now joining us from Bloomington, Minnesota, is Bill Black. Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He’s also a white-collar criminologist and a former financial regulator. And, of course, he’s regular contributor to The Real News.
Thanks for being with us, Bill.
BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.
DESVARIEUX: So, Bill, there’s been talk of Ecuador coming up with a digital currency, and they just released some more details about that plan. First of all, just explain to us what exactly is a digital currency and how would that work.
BLACK: Well, there isn’t an exact definition of digital currency, because there are multiple ways to do it. But here’s the background. In 1999, there was a terrible banking crisis in Ecuador in which basically the large banks collapsed and there was a nightmare. And one of the ways that the government back then responded to the crisis was by adopting the U.S. dollar as the currency of Ecuador. So they didn’t just peg their currency; they actually have the U.S. dollar as their currency. And that means there are literally planeloads of cash that fly back and forth between the United States and Ecuador to bring money in and to bring old bills back for destruction. And this is treated by the public in Ecuador as being a wonderful thing because what before was so bad. So, politically it’s impossible to go back to having a sovereign currency.
And that has a lot of problems in economics, because if you don’t have your own currency, you basically lose a lot of sovereign powers. The president of Ecuador, Correa, Rafael Correa, is very good academic economist who eventually became president of his nation. So he knows all about the weaknesses of not having a sovereign currency, but also knows that politically it’s impossible to get rid of it.
So on top of that, Ecuador has, of course, a lot of rural poverty, and it’s an extremely mountainous country, and where it isn’t mountainous, it’s Amazonian in many cases. And so it’s really hard to get banking services out to the rural poor.
Despite all these things–in part, by the way, this is a triumph of privatization, not just in Ecuador, but in places like Haiti and much of Africa–the creation of mobile phone networks, typically by private sector, has revolutionized telecommunications. And so, many poor people, even, in Ecuador actually have phones that they could link to networks. So the idea in Ecuador’s situation is not some, you know, bitcoin thing that’s used mostly, frankly, for illegal trades, but to have a device so that you could be in a really remote rural area and you could conduct basic banking by simply using your phone.
DESVARIEUX: But the people that own the phone companies, like you mention, are private companies. So I can imagine, then, that the government and private industry are going to have to work hand-in-hand. And if one side doesn’t agree on something, couldn’t this pose a big problem, Bill?
BLACK: It could. I mean competition really is a big part of the solution to this. And the difficulty that comes again from being mountains, if you think about that and you think about mobile phones, then you need towers, repeating towers. And it’s vastly more efficient to put one near the summit than to have to put four of them around the flanks. And there is a problem. One of Carlos Slim’s affiliated companies is trying to not only buy up those summits, but have exclusive leases that say that the landowner renting the land to Slim’s companies cannot allow rivals to put a tower on the summit as well, even though there’s plenty of room physically to do that. That’s the subject of an antitrust action right now in Ecuador. So you’re certainly right to worry about those things. There’s actually a very good official in charge of the–again, another very good economist–in charge of the antitrust authority in Ecuador, and he’s sometimes under political attack for doing these kinds of things.
But, all in all, the private-sector creation of private phone networks has been a very good thing for Africa, for Haiti, and mostly good so far for Ecuador. And if they can prevent these kind of antitrust abuses, that wouldn’t be the problem.
In terms of what is a digital currency in this context, well, that hasn’t–the details haven’t been worked out. The legislature has authorized this as a system, but now they have to actually implement it. The idea of a digital currency, of course, is simply there is no physical cash. There doesn’t need to be. You’re just moving account numbers. But the question that’s going to exist, and it could be a significant question, is: what is the exchange rate going to be between this digital currency and United States dollar? And that is not worked out. And there are answers to that, but no perfect answers to that. So that’s really, I think, going to be were the fight is going to be in the coming months as they try to implement the actual digital currency.
DESVARIEUX: What about the mainstream media? How have they been covering this, bill?
BLACK: Well, the BBC has this story about Ecuador’s going to adopt this digital currency, and about one-third of the way into it, they go off on this complete tangent and attack Ecuador for having, quote, billions of dollars in debt, unquote. Well, you know, the 150 largest nations in the world have billions of dollars in debt. Ecuador actually has a debt-to-GDP ratio of right around 23 percent, I think it is. To give you an example of comparison to a government that the BBC might know well, the United Kingdom, they have 91 percent debt to GDP ratio. And, by the way, Germany’s is 81 percent.
DESVARIEUX: So, essentially, yeah, they’re making a big deal over debt, but if you compare it to the U.K. and other European nations, they’re not doing too bad.
BLACK: Well, not only that, they’re doing great would be the answer. And the context of the article is, look, this is Correa trying to buy votes, because he’s borrowing recklessly to fund what they call social programs. Well, the three social programs that, as the BBC admitted, Correa tripled spending on: one was infrastructure, the second was health care, and the third was education. What are the three things that even the Washington Consensus, the ultraconservative document, says the governments of Latin America should be spending more on? Well, they’d be infrastructure, education, and health care. In other words, they’re attacking Correa for doing exactly what they’ve been telling them they should do for 30 years now. And, by the way, the results have been extremely good. Unemployment is down to well below U.S. levels. Poverty has reduced dramatically. Income inequality has been reduced dramatically. And Ecuadorians are voting with their feet. Ecuador was a nation in Latin America with the highest percentage of people leaving the country under prior regimes, and now there’s a net inflow of people of Ecuadorian descent back into Ecuador. So they’ve tried to make one of the world’s great success stories sound like a disaster in the midst of story that’s supposedly about digital currencies. This is what happens when you give sanctuary to Assange.
DESVARIEUX: I got you. So this digital currency, if I am correct, in December is going to be rolled out. Is that right, Bill?
BLACK: Well, that’s the plan. Of course, not all plans kind of survive contact with the reality of trying to implement them. But they’ve had a pretty good record of bringing things in at least roughly on time in Ecuador.
DESVARIEUX: Okay. Well, we’ll certainly keep track of this story.
Bill Black, it’s always a pleasure. Thank you so much for joining us.
BLACK: Thank you.
DESVARIEUX: And thank you for joining us on The Real News Network.
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