The Ecuadorian example is a bit odd. For one thing, the currency was the US dollar. For another, the Banco Central del Ecuador (BCE) doesn’t quite have the powers you’d expect of something called a “central bank.”<\/p>\n
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<\/p>\n Ecuador went through a hyperinflation in the late 1990s<\/a> \u2014 from a combination of outside shocks, and internal structural weaknesses. The currency, the sucre,<\/a> went down in value rapidly.<\/p>\n The economy was already substantially running on cash in US dollars \u2014 so the government formally declared the US dollar the national currency in January 2000, to take effect as of March.<\/p>\n This left the BCE unable to issue its national currency, act as the lender of last resort, or manage monetary policy in any meaningful way. So its focus shifted to guidelines and policy, and doing what it could for national economic stability that way. [Speech<\/i><\/a>, PDF, 2005<\/i>] As of 2014, the BCE was no longer independent of the Ministry of Finance.<\/p>\n But \u2014 the BCE was also the regulator for payments.<\/p>\n In 2014, Ecuador\u2019s Congress approved an electronic dollar, backed by liquid assets \u2014 so technically, this was the first CBDC US dollar, sort of! This was Sistema de Dinero Electr\u00f3nico (SDE; \u201celectronic money system\u201d), run directly by the BCE.<\/p>\n You could sign up with an Ecuadorian identity card and a mobile phone. This gave you an account at the BCE. You could go to an authorised outlet and deposit cash into the account.<\/p>\n Each dollar in SDE was backed by a dollar stored at BCE \u2014 so this was e-money. The BCE was the only legal issuer of e-money \u2014 cryptocurrency was also disallowed \u2014 and the phone company, CNT, was the only legal distribution channel.<\/p>\n The stated reason for SDE was to improve access to the banking system for poorer residents, and reduce the reliance of the economy on physical cash \u2014 to get the economy moving.<\/p>\n Users could exchange dollars on SDE between themselves \u2014 just like cash. The poor ran on a cash economy, a lot of which was an informal economy, and BCE hoped that SDE would bring them into the financial system.<\/p>\n Both local commentators and foreign debtors worried that Ecuador would create unbacked dollars in SDE to pay off the country\u2019s debts \u2014 particularly given that the government had defaulted on bond issues just a few years earlier. Ecuador denied any such plans \u2014 and didn\u2019t end up doing anything along these lines with the dollars in SDE. [Bloomberg<\/i><\/a>;<\/i> CNBC<\/i><\/a>]<\/p>\n SDE had a limited launch in late 2014, and a full public launch in 2015. The BCE expected 500,000 users by the end of 2015.<\/p>\n The system failed to take off \u2014 SDE only had 5,000 users by the end of 2015. By the end of 2017, SDE had moved $62 million via 5.1 million transactions in its entire existence \u2014 with only $11 million on deposit, as compared to the $24.5 billion<\/em> in cash in the Ecuadorian economy. There were 402,515 e-money accounts \u2014 but less than 30% of these were ever used, at all. [El Comercio<\/i><\/a>,<\/i> El Universo<\/i><\/a>]<\/p>\n The people with money trusted private banks more than they trusted the central bank \u2014 because they remembered the ways the Ecuadorian government had abused its financial powers in recent years. [El Universo<\/i><\/a>]<\/p>\n SDE wasn\u2019t taken up by the unbanked or underbanked. Even in the rural areas \u2014 \u201cAqu\u00ed pagamos con la palabra y el dinero contante y sonante\u201d (\u201chere, we pay with our word, and hard cash\u201d) \u2014 people trusted their local co-op bank, but they didn\u2019t trust the central bank. [El Comercio<\/i><\/a>;<\/i> El Universo<\/i><\/a>]<\/p>\n The central bank just wasn\u2019t good at serving retail customers, either \u2014 even if it had had the full trust of the users.<\/p>\n The government eventually acknowledged SDE wasn\u2019t going to do the job. The commercial and cooperative banks put together a new mobile payment system, Bimo, with BCE as the regulator. SDE was shut down in March 2018, and accounts could be migrated to Bimo. [El Universo<\/i><\/a>]<\/p>\n SDE wasn\u2019t quite a CBDC \u2014 in practical terms, it was more of a failed payment system.<\/p>\n One lesson that SDE does teach us is to work hard on retail acceptance of your exciting new payment system. I keep finding all these whizz-bang payment system plans \u2014 and they all died of minor inconvenience. I\u2019m told that Bimo isn\u2019t really taking off either. Serving customers at scale keeps turning out to be quite difficult in practice.<\/i><\/p>\n And \u2026 don\u2019t try to back your system with a bank that your users don\u2019t trust with their money.<\/p>\n Thanks to Mar\u00eda Jos\u00e9 Calder\u00f3n, Ron Echeverri, Stephan K\u00fcffner and Maria-Laura Pati\u00f1o for local knowledge and sanity-checking, and Ed Salazar for research links.<\/em><\/p>\n![\"\"](\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2020\/09\/ecuador-sde.png\")
<\/a><\/p>\nThe central bank that wasn\u2019t, quite<\/b><\/h3>\n
Move dollars faster \u2014 SDE<\/b><\/h3>\n
If you build it, they won\u2019t come<\/b><\/h3>\n
Lessons for CBDC<\/b><\/h3>\n
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![\"Become](\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2021\/10\/become_a_patron_button.svg\" "\\"Become")
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