Ecuador Plans First Digital Currency

Ecuador plans to introduce the world's first digital currency, which will be issued by its Central Bank, according to media reports.

The yet unnamed currency is expected to start circulating in December, according the country's Central Bank officials, reports the BBC. At the moment there are no plans to abandon the current official mode of exchange, the dollar, but a general easing out cannot be totally ruled out.

President Rafael Correa  said the digital currency will help those who cannot afford traditional banking.

Deputy director of the bank,Gustavo Solorzano said the currency by law will be backed by "liquid assets." It would be geared toward the 2.8 million Ecuadoreans, too poor to afford traditional banking, officials say, reports the Associated Press.

This new currency move was approved by the government assembly, which banned the crypto currency Bitcoin in the country at the same time

Mobile payments through cellphones will be allowed. Such payment modes are already in existence in some African countries.

"It is far too early to know how they are thinking of making the electronic money work," said analyst Juan Lorenzo Maldonado of Credit Suisse LLC, to the Associated Press.

Analysts are worried that unlike the Bitcoin currency, which is self limiting as only a minimal amount can be minted. But the Ecuador government can issue as much currency as it wants, which might result in inflation and devalue the dollar.

The currency usage for the time being is limited and it cannot be used in state financial transactions or to pay government employees.

"It will be interesting to see who controls the exchange rate," said Jeremy Booney - a product manager for Coindesk - a website for digital currency news to BBC News.

Who will decide at what rate a dollar will change hands for the digital currency, the market or the government, he muses.