Electronic money & will it eventually devalue your dollar?

Britmick: I don't see how a new currency would affect the value of the dollar, as long as people are not forced to accept the new currency. For right now, the government is saying nobody will be forced to accept it, but that is of course subject to change.

Things could get scary if an expat had a substantial bank account in Ecuador, in dollars, but the government said that the bank could pay out withdrawals in the new currency. Then the question would become whether the conversion rate is realistic.

The biggest question, to me, is whether the new currency will hold its own value rather than inflating badly. That will depend on what is used to back it, which I haven't seen defined yet.

Bob

Precisely Bob, I'm being Devil's Advocate here I know, but can any of you really afford to leave your $$$'s in an account that could be devalued at any time?
Ecuador should be a rich country with the correct management, but apparently they owe Billions $$$'s!

britmick wrote:

Precisely Bob, I'm being Devil's Advocate here I know, but can any of you really afford to leave your $$$'s in an account that could be devalued at any time?

If you need a local bank account, I'd recommend keeping small sums in it, keep most of your money in your home country (or wherever you think is safer) and wire transfer into your Ecuadorian account as needed.

Here is a recent article that highlights some of the potential problems that could occur with this new system.

http://www.takepart.com/article/2014/09 … l-currency

It appears one can simply refuse to use the new currency unless it is given to you by the government through the central bank.  Hopefully one will be able to continue to use dollars only and ignore the new stuff.  It seems more of a risk to have to use your phone in public.

It's unlikely to have much pull on anything for a very long time, if at all.
Getting people to use this will be a massive problem,as will crime involving stolen mobile phones. The value of these will increase a lot, so you'll probably see a nice new crime wave if the electronic currency gains popularity.
As for the Dollar in general, BRICS is a far bigger problem for the US treasury.

What is BRICS?

Countries which have signed a number of trade and financial agreements among themselves, and outside of the western banking system.

Brazil, Russia, India, China, and South Africa.

gardener1 wrote:

Countries which have signed a number of trade and financial agreements among themselves, and outside of the western banking system.

Brazil, Russia, India, China, and South Africa.

Ian Anderson and Jethro Tull did a whole album about them in 1972 called Thick As a BRICS>

Thanks mugs, a little levity always helps one dealing with such grim and weighty issues

gardener1 wrote:

Countries which have signed a number of trade and financial agreements among themselves, and outside of the western banking system.

Brazil, Russia, India, China, and South Africa.

Definitely not good for us, that is US

suefrankdahl wrote:

gardener1 wrote:

Countries which have signed a number of trade and financial agreements among themselves, and outside of the western banking system.

Brazil, Russia, India, China, and South Africa.

Definitely not good for us, that is the US

A stupid understatement for sure. Our trade and financial agreements fall apart for all kinds of reasons don't they? BRICS governments more unpredictable, no? It's a given that the money is actually in the hands of a few, some freer than others to make decisions and influence these kind of agreements, no?

I agree with Bob that the best way to minimize Ecuador currency risk is to limit USD,s in Ecuador including bank accounts, real estate, auto, etc. Should the government decide to drop the USD as it's currency or place more restrictions on sending USD out of Ecuador (currently 5% tax), the cost of leaving Ecuador can be sizeable.

fdmcg wrote:

I agree with Bob that the best way to minimize Ecuador currency risk is to limit USD,s in Ecuador including bank accounts, real estate, auto, etc. Should the government decide to drop the USD as it's currency or place more restrictions on sending USD out of Ecuador (currently 5% tax), the cost of leaving Ecuador can be sizeable.

Ecuador dropping the dollar as official currency is quite conceivable. Anyone who wants to look way back when they were debating using the dollar as official currency, would realize that the current President, was at the time one of several economists dead set against having the dollar as the official currency. Fast forward to 2014, and with the large debt the current administration is building, it would be pretty easy to see them wanting their own currency that they can devalue to pay off loans.

Agree with both Bob, and fdmcg about limiting exposure. Although I wouldn't be afraid to buy real-estate. If the price was right of course, but I also would have no problems sitting on a property for next 25-30 years. That might not be realistic for some people.

j600rr wrote:

Agree with both Bob, and fdmcg about limiting exposure. Although I wouldn't be afraid to buy real-estate. If the price was right of course, but I also would have no problems sitting on a property for next 25-30 years. That might not be realistic for some people.

For those of us with or applying for pensionado visas, this change should, for now, have little effect, since most of us are having our pensions deposited in US banks (if you're not, you might want to give it some thought).

It might matter, though, if you're considering getting an investment visa. As j600orr says, it might be OK to do a real estate investment; but I'd advise a friend to think long and hard before buying a $25k CD under current circumstances.

Bob

Every blog I've read and ex-pat I've talked to wil ltell you not to keep more than $10K in an EC bank.  That's still too much for me.  Write a check outta your USA bank to keep a balance of $500 to cover weekly expenses and yuse your USA debit card at the ATM for cash.  That's my suggestion!

Ronwatral wrote:

Every blog I've read and ex-pat I've talked to wil ltell you not to keep more than $10K in an EC bank.  That's still too much for me.  Write a check outta your USA bank to keep a balance of $500 to cover weekly expenses and yuse your USA debit card at the ATM for cash.  That's my suggestion!

Under $10,000 is to avoid extra reporting to the government, but keeping it as low as possible works best, especially since there are banks in Ecuador not covered by deposit insurance.  One should be sure that whatever bank is used such insurance exists, probably meaning lower interest rates for savings, but more principle security.

Britmick,
p
Essentially, BobH already answered this correctly...no hit on the USD, unless it replaces the USD, which is a whole other thing than what you are asking. As for the Chinese debt...poppycock from the Western Press. Debt is what the USA has...in Ecuador, the Chinese are getting paid with oil and it is a pretty balanced and orderly process. No debt crisis here,like in the USA.

Hector G. Quintana
[email protected]

So to stay in Ecuador you need to deposit $25k into a CD or buy a property??
Both of those options look decidedly shaky to me taking into account the above
"worries" about the present Government staying with the dollar, & devaluation being
an option to get them out of their present financial crisis!
This situation is making me seriously think twice about moving to Ecuador, & I will
await more positive information before "taking the plunge" because for me it would be
a one & only move, & l definitely wouldn't want to gamble on a "maybe, maybe not" scenario
when it comes to my retirement & future!

britmick wrote:

So to stay in Ecuador you need to deposit $25k into a CD or buy a property??
Both of those options look decidedly shaky to me taking into account the above
"worries" about the present Government staying with the dollar, & devaluation being
an option to get them out of their present financial crisis!

Mick: The $25k is only required if you are seeking an investment visa. If that's the case, I share your concern.

If you are retired, though, you need only prove that you have pension income of $800/month to get a pensionado visa. That's the route I went.

Bob

Britmick,

1) Again...no imminent concern of a USD devaluation;
2) A swap out of the USD is very unlikely by the current administration, with a USA trained economist at the helm. Although, given the likely long-term trend of the USD, it is a glass half-full/half-empty proposition;
3) So...no real risk, here, from that perspective;
4) However, if you are having these many doubts over "non-issues", my advice is to stay put. Hope where you are has less risk, but why is it that I doubt that.

Hector G. Quintana
[email protected]

Paranoia much??? Ecuador's debt is the 4th lowest of all G20 countries at 24.4 % of GDP !   only 12 Billion!! The US is #1 for debt at 100.1% of GDP try on 18 TRILLION that is 18,000 Billion!!!  Back in 1999 when the banks failed in Ecuador the ratio was 85% of GDP for debt. I would say we (Ecuador) are in damn good shape!! 

Look at the "Great Recession"  Ecuador experienced only a mild downturn, losing about 1.3 percent of GDP during three quarters of recession. A year later, or 7 quarters from the onset of the recession, the economy had returned to its pre-recession level of output (this took four years in the United States). Ecuador's recovery owed much to a successful stimulus plan, amounting to nearly 5 percent of GDP in 2009, one of the biggest in the hemisphere. One of the best in the world!!

Also the Electronic currency will be backed by liquid assets from the Central bank. That makes a 1 for 1 exchange in anybody book!!

Go back to the USA and try to live as well as here for the same price. Cant do it!!!

HGQ2112 got it right!!! If you are paranoid,,, Stay or go back to Obama land!

The insured coops here pay 10%. keep a number of accounts of $31,000 that are insured by the Ecuador govt. and you have a nice income. The coops do NOT report to the US govt where as the banks do. so the $10,000 floor is of no concern with a coop account. You may say "well" look at "Coopera" but they were not insured by the govt. as they said they were. You  can go to the COSEDE web page and see the insured Banks and Coops in Ecuador.

The Ecuadorian govt does not print money which would put it in debt the instant the money would be put into circulation. The US dollars used here were purchased with Oil and Gold. No debt, so no, or very little chance of devaluation!

No one seems to know the right answer why there is a 5% tax on exporting money. If you do some homework you will find out that: Because Ecuador has the best interest rates for bank and coop accounts here, there were many large corporations taking advantage of this fact. They would pull large amounts out at a time. The Ecuador govt wanted to slow that down so imposed a 5% tax. No more complicated than that.

Who would buy property for appreciation when most all of us are to old to see a (as one person wrote) 25 year time period. I myself plan to be long dead by then. $25k in a CD at %10 works well if you don't have the $800 per month for a 9I visa.

I agree with so much in this post. For even more security and peace of mind Banco Pichincha is the oldest and largest international bank in Ecuador. When there was a financial crisis and some of the banks went under Pichincha was able to buy their assets. They only pay 4.5% interest on investment visa cds but return of principal is more important than return on principal.

The problem with the banks is the IRS (USA) new law (Jan 2014) you have to report any account starting at $10,000 to the IRS. Income to follow. The penalty for non reporting starts at $10,000, The Bank (Pichincha) is an international bank with a branch in Miami as well as being a party to the international banking treaty to report all accounts to the IRS. Coops on the other hand are not subject to such requirements so your accounts and income stay your own business. Also Coops like JEP pay 10% on your CD's They are insured by COSEDE just like Pichincha and other banks. You are right that Pichincha did make it through the 1999 banking collapse. But that does not mean they are the only safe bank or Coop in Ecuador at this time. Would you rather have 4.5% or 10%. on your hard earned money? Not a hard question to answer. The security and peace of mind you talk about I think is the COSEDE insurance. I see on a monthly basis, financial institutions going down. The COSEDE pays all accounts within 2 weeks. The institutions pay (just like the USA for FDIC) a premium into the fund to keep it liquid. At this juncture the fund has 1.5 Billion dollars. I feel pretty safe with my numerous accounts at JEP making a fat 10%

Cuenca boy wrote:

Coops on the other hand are not subject to such requirements so your accounts and income stay your own business. I feel pretty safe with my numerous accounts at JEP making a fat 10%

Any USA citizen who does not report all of his overseas holdings as required or pay tax on his world wide income is asking for trouble.  The IRS can attach your SS benefits.  Why not just renounce your USA citizenship?

Good idea!! Mr clean!!

This is the month -- December 2014 -- that Ecuador's government is supposed to introduce the new digital currency, supplementing and at par with the U.S. dollar.

In an article titled "Can Ecuador's Digital Currency Save Its Economy," the publication "World Finance" reports:

"Significant shares of the country's dollars are tied up in either debt or dwindling oil and gold reserves.  Ecuador's currency is under immense pressure from excessive government spending, which has tripled since President Rafael Correa took charge in 2007...

"(This has exacerbated) an already-desperate situation.  What's more, with an anticipated budgetary shortfall of $4.5 billion for this year...the country has again been forced to seek a radical means of shoring up its finances."

The article concludes:  "It's problematic to draw conclusions about what is essentially an unknown entity....The months that follow its introduction should indicate what benefits a centralised digital currency can bring for an economy teetering on the brink of turmoil...."

cccmedia wrote:

This is the month -- December 2014 -- that Ecuador's government is supposed to introduce the new digital currency, supplementing and at par with the U.S. dollar.

In an article titled "Can Ecuador's Digital Currency Save Its Economy," the publication "World Finance" reports:

"Significant shares of the country's dollars are tied up in either debt or dwindling oil and gold reserves.  Ecuador's currency is under immense pressure from excessive government spending, which has tripled since President Rafael Correa took charge in 2007...

"(This has exacerbated) an already-desperate situation.  What's more, with an anticipated budgetary shortfall of $4.5 billion for this year...the country has again been forced to seek a radical means of shoring up its finances."

The article concludes:  "It's problematic to draw conclusions about what is essentially an unknown entity....The months that follow its introduction should indicate what benefits a centralised digital currency can bring for an economy teetering on the brink of turmoil...."

I can guarantee that there will not be a $4.5 billion budget shortfall, because unlike irresponsible USA politicos, Correa and the PAIS party will make cuts if necessary to create a more balanced budget and revenue from non-oil sources is being underestimated.  Second, there is no "desperate situation" in Ecuador, other than an opposing political party movement that has zero negative to pin on Correa...so they make up inane "tragic situation" stories.  This economy is humming on all cylinders, Third, what source and calculation is being used to suggest "a depletion....of...gold reserves"?  Btw...anyone peek into Fort Know of late?  At least Ecuador has given a  verifiable  public accounting of its gold reserves. Can the USA, for example, say the same?  Also...and in closing...what is described as "excessive public spending" is Correa doing more for infrastructure in Ecuador in the last 7 years, than had been accomplished in the 70 years before combined.  If it didn't serve the "elite centers", you pretty much did without, prior to Correa. So, if that seems "excessive"...starting from a zero nadir...not hard to overspend, is it? Unless, of course, someone wants to make the case against road construction, school buildings, hospital care and more police - all finally being modernized under Correa. This spin is a joke and no one at street level in Ecuador is buying. If the opposition wants to poll above 30% in 2017, they better come up with something better than this.  It's laughable. Correa, btw, continues to enjoy a 72% approval rating, the second highest in the world for a country leader, as of the last data release.

Inflation is defined as too many dollars chasing too few of goods.  It occurs when the velocity of money accelerates through the economy at a rather brisk pace.  The worries you have won't cause inflation.

As for USA citizens, the use of digital currency establishes more tax reporting problems.  Bitcoins are not viewed as currency by the IRS, but rather more like a bond.  If one uses bitcoins, then the value of the coins used when purchased is the cost basis and when sold the value used is the proceeds, resulting in a short or long term capital gain or loss.  Not sure if the IRS would view EC digital currancy the same way, we will probably have to wait and see.

mugtech wrote:

As for USA citizens, the use of digital currency establishes more tax reporting problems.  Bitcoins are not viewed as currency by the IRS, but rather more like a bond.  If one uses bitcoins, then the value of the coins used when purchased is the cost basis and when sold the value used is the proceeds, resulting in a short or long term capital gain or loss.  Not sure if the IRS would view EC digital currancy the same way, we will probably have to wait and see.

Interesting observation and consideration.

HGQ2112 wrote:

cccmedia wrote:

This is the month -- December 2014 -- that Ecuador's government is supposed to introduce the new digital currency, supplementing and at par with the U.S. dollar.

In an article titled "Can Ecuador's Digital Currency Save Its Economy," the publication "World Finance" reports:

"Significant shares of the country's dollars are tied up in either debt or dwindling oil and gold reserves.  Ecuador's currency is under immense pressure from excessive government spending, which has tripled since President Rafael Correa took charge in 2007...

"(This has exacerbated) an already-desperate situation.  What's more, with an anticipated budgetary shortfall of $4.5 billion for this year...the country has again been forced to seek a radical means of shoring up its finances."

The article concludes:  "It's problematic to draw conclusions about what is essentially an unknown entity....The months that follow its introduction should indicate what benefits a centralised digital currency can bring for an economy teetering on the brink of turmoil...."

I can guarantee that there will not be a $4.5 billion budget shortfall, because unlike irresponsible USA politicos, Correa and the PAIS party will make cuts if necessary to create a more balanced budget and revenue from non-oil sources is being underestimated.  Second, there is no "desperate situation" in Ecuador, other than an opposing political party movement that has zero negative to pin on Correa...so they make up inane "tragic situation" stories.  This economy is humming on all cylinders, Third, what source and calculation is being used to suggest "a depletion....of...gold reserves"?  Btw...anyone peek into Fort Know of late?  At least Ecuador has given a  verifiable  public accounting of its gold reserves. Can the USA, for example, say the same?  Also...and in closing...what is described as "excessive public spending" is Correa doing more for infrastructure in Ecuador in the last 7 years, than had been accomplished in the 70 years before combined.  If it didn't serve the "elite centers", you pretty much did without, prior to Correa. So, if that seems "excessive"...starting from a zero nadir...not hard to overspend, is it? Unless, of course, someone wants to make the case against road construction, school buildings, hospital care and more police - all finally being modernized under Correa. This spin is a joke and no one at street level in Ecuador is buying. If the opposition wants to poll above 30% in 2017, they better come up with something better than this.  It's laughable. Correa, btw, continues to enjoy a 72% approval rating, the second highest in the world for a country leader, as of the last data release.

Sounds like you won't be voting for Nards in 2017.

HQ if you happen to read this I'd be curious on your thoughts.

Will openly admit am one of those people who thinks Ecuador is in for tough times in the future, but you raise some interesting points. Agree 100% that Correa has done a great job of bringing Ecuador into the 21st century, and for the most part creating a better overall quality of life for a large percentage of the population. Also agree that the past administrations, and some of the former, and current Ecuadorian elitists accomplished practically nothing, and are unhappy with the loss of power.

Certainly Ecuador is not nearly as reliant on high oil prices as say Venezuela, Iran, Nigeria etc. What are the other industries in Ecuador that are producing jobs, and what are the other sectors that will continue to grow while producing jobs? Low oil prices are going to be around for at least the next several years (more than likely). Obviously Correa will have to cut some spending. Believe he has already pretty much said that. Some
will suffer a bit because of it, but that is just how economics work. If Ecuador is strong in other sectors, then those sectors should pick up some of the slack, and overall everything should still run fairly smoothly.

By no means am I right, but I just don't see all these other industries, and sectors in Ecuador that are producing that much, and I don't see that many companies/businesses that have high interest in investing heavily in Ecuador, aside from perhaps oil, and mineral companies. Again, by no means am I right, but it has been my impression that much of the growth has been from government funding/spending, and in large part much of the Ecuadorian economy is still reliant on government spending to create jobs. You are there on the scenes, and can gage the daily life and activities. Is a lot of money being pumped into the economy from private sources, and are many businesses starting up, or moving to Ecuador, and creating growth outside of government funds? That would be wonderful if that were the case.

j600rr wrote:
"What are the other industries in Ecuador that are producing jobs, and what are the other sectors that will continue to grow while producing jobs?"

j600rr wrote:

What are the other industries in Ecuador that are producing jobs, and what are the other sectors that will continue to grow while producing jobs?...much of the Ecuadorian economy is still reliant on government spending to create jobs.

Tourism is one such industry.  The EC Ministry of Tourism reports that earnings from tourism were up 28 percent this year (Jan.-April 2014, compared to the same four months last year) to $378.5 million.

Over one million foreign visitors arrived in Ecuador during the first eight months of this year.

The government spending that J600 mentioned is there.  The Ministry of Tourism's annual budget has been increased from $40-million two years ago to a $600-million budget for 2017.

Reports Ecuador News Magasine: "Tourism is one of the sectors that the left-wing government of Rafael Correa has referred to as a strategic and currently fourth largest source of non-oil revenues."

Visitor numbers are up this year through the end of August, by 14 percent over the first eight months of last year.  The three main visitor-countries were Colombia (265K), the United States (188K) and Peru (116K) for January-August this year.

The Tourism Ministry is stressing that EC has 21,069 establishments offering services for visitors, generating 113K direct jobs, according to a study conducted last year.

(Ministry figures and visitor numbers courtesy of Ecuador News Magasine.)

j600rr wrote:

I just don't see all these other industries and sectors in Ecuador that are producing that much.

"Yes, we have no bananas,
We have no bananas today."
   -- from an Eddie Cantor song* (debuted 1922)

Ecuador's supremacy in banana exporting** is being challenged.

"The world's main banana importers are looking for new opportunities," according to diariopinion.com (Feb. 2014), which reported that some countries in Africa and the Caribbean are subject to lower tariffs than Ecuador's when exporting to the European Union.

"The goal is to find countries that still have something Ecuador lost: preferential treatment from the market with the highest prices -- the European Union.

"Del Monte found cheaper bananas in Costa Rica...and is now headed towards Panama....Dole arranged a long-term association with producers in Mosambique, (and Dole's) subsidiary in Honduras will re-build the plantations destroyed by hurricane Mitch."

Last year, EC exported 256 million boxes of bananas worldwide, 2.9 percent more than the year before, but 10 percent less than in 2011. (diariopinion.com)

* "Yes, We Have No Bananas" debuted on Broadway in the 1922 review "Make It Snappy" and became a nationwide hit in 1923.  The novelty song was written by Irving Cohen and Frank Silver. (Wikipedia)

** Ecuador is "the world's largest exporter of bananas." (Wikipedia)

mugtech wrote:

HGQ2112 wrote:

cccmedia wrote:

This is the month -- December 2014 -- that Ecuador's government is supposed to introduce the new digital currency, supplementing and at par with the U.S. dollar.

In an article titled "Can Ecuador's Digital Currency Save Its Economy," the publication "World Finance" reports:

"Significant shares of the country's dollars are tied up in either debt or dwindling oil and gold reserves.  Ecuador's currency is under immense pressure from excessive government spending, which has tripled since President Rafael Correa took charge in 2007...

"(This has exacerbated) an already-desperate situation.  What's more, with an anticipated budgetary shortfall of $4.5 billion for this year...the country has again been forced to seek a radical means of shoring up its finances."

The article concludes:  "It's problematic to draw conclusions about what is essentially an unknown entity....The months that follow its introduction should indicate what benefits a centralised digital currency can bring for an economy teetering on the brink of turmoil...."

I can guarantee that there will not be a $4.5 billion budget shortfall, because unlike irresponsible USA politicos, Correa and the PAIS party will make cuts if necessary to create a more balanced budget and revenue from non-oil sources is being underestimated.  Second, there is no "desperate situation" in Ecuador, other than an opposing political party movement that has zero negative to pin on Correa...so they make up inane "tragic situation" stories.  This economy is humming on all cylinders, Third, what source and calculation is being used to suggest "a depletion....of...gold reserves"?  Btw...anyone peek into Fort Know of late?  At least Ecuador has given a  verifiable  public accounting of its gold reserves. Can the USA, for example, say the same?  Also...and in closing...what is described as "excessive public spending" is Correa doing more for infrastructure in Ecuador in the last 7 years, than had been accomplished in the 70 years before combined.  If it didn't serve the "elite centers", you pretty much did without, prior to Correa. So, if that seems "excessive"...starting from a zero nadir...not hard to overspend, is it? Unless, of course, someone wants to make the case against road construction, school buildings, hospital care and more police - all finally being modernized under Correa. This spin is a joke and no one at street level in Ecuador is buying. If the opposition wants to poll above 30% in 2017, they better come up with something better than this.  It's laughable. Correa, btw, continues to enjoy a 72% approval rating, the second highest in the world for a country leader, as of the last data release.

Sounds like you won't be voting for Nards in 2017.

Hey...touch n' go...flip of a coin right now.