Ecuador’s new fake currency

And it’s not even bitcoin.

Mary O’Grady writes about Ecuador’s Phony Bitcoin Ploy
President Correa’s new ‘electronic currency’ will make it easier to engage in monetary devaluation.

This year Ecuador will run a fiscal deficit, including debt service, of some $9.2 billion, more than 9% of GDP. That’s what happens with budgeting that forecasts that oil prices will grow to the sky. It will be hard to shrink bloated state payrolls and subsidies, and the cost of servicing rising debt levels isn’t getting any cheaper.

To return this year to the international capital markets with a $2 billion 10-year bond, Ecuador had to pay a whopping 7.95% coupon. It also took out a $400 million three-year loan from Goldman Sachs against Ecuadorean gold to meet budget shortfalls. China holds $11 billion in Ecuadorean debt, not including billions of dollars in loans from Beijing secured by future oil shipments at an undisclosed price.

Now Mr. Correa is planning for when he runs out of other people’s money. The central bank says its new money will be a parallel currency backed up by dollars or the “equivalent” and used to pay its 500,000 bureaucrats in a “hygienic” manner. But if so, why not use dollars? In today’s world, there’s nothing special about transferring money electronically. Implying that this is a “virtual” currency is an attempt to lend Bitcoin-like cachet to what will essentially be IOUs issued by a country with a rather dodgy credit history.

And, if you think Ecuador may be a good place to retire, keep in mind that

Ecuadoreans are not free to speak against this threat to their earnings and savings. Mr. Correa is well known for using the judicial system and the army to threaten and silence his critics. Earlier this month he won the passage of a new law that makes it a crime—punishable by up to seven years in prison—to “publish, broadcast or spread” news that creates “economic panic.”

Panic indeed.

A “parallel currency backed up by dollars”? Don’t be the next Lord Crawley.

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2 Responses to “Ecuador’s new fake currency”

  1. The prehistoric seals Carnival of Latin America and the Caribbean | Fausta's Blog Says:

    […] « Ecuador’s new fake currency […]

  2. Ecuador: If Correa ain’t happy . . . | Fausta's Blog Says:

    […] you may recall, president Rafael Correa has come up with a fake currency to cover up a fiscal deficit, including debt service, of some $9.2 billion. Correa claims there’s […]