NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, August 13, 2015

Jaime Rojas keeps his antiquated cellphone on the dashboard of his taxi. He can’t use it to play games or check Facebook, but his “dumb phone” has recently become a powerful tool: He can use it to buy gas, receive fares and send money to family.

Mobile banking has been around for a decade, but this tiny Andean nation recently became the first country in the world to create its own virtual currency. Unlike Bitcoin, Ripple or Peercoin — crypto-currencies with no central bank backing — Ecuador’s dinero electrónico is legal tender, trading alongside the U.S. dollar, which has been the official currency since 2000.

Authorities say the mobile money scheme is a way to offer financial services to those in remote areas where banks are scarce and to help jump-start small businesses. Skeptics, however, fear the system opens up a backdoor for the cash-strapped administration to shed the restrictions of its dollarized economy and, just perhaps, “print” its own digital currency.

Rojas, 55, is among the 47,456 people who have opened mobile accounts since the system went live in December. He says he primarily uses it to buy gas. And while he rarely encounters customers with e-money, he’s grateful when he does.

“This way you don’t have to struggle to find the exact change,” he said, as he plowed his yellow cab down a busy street. “And it’s safer than carrying cash — because of the risk of getting robbed and all that business.”

The government’s control of the virtual currency market (all others are illegal, including Bitcoin) has its advantages. Within a few minutes, anyone with a cellphone on any carrier can open up a mobile account — and money can be added at any bank or other registered outlet.

Growth in the system, however, has been slow. There’s only $645,669 worth of digital cash in circulation and less than 1 percent of the country’s 17 million cellphones are registered to the service, according to Central Bank figures.