The National Assembly of Ecuador has effectively banned bitcoin and decentralized digital currencies while establishing guidelines for the creation of a new, state-run currency.
With 91 votes in favor of the amendments to the country's existing monetary and financial laws, the National Assembly approved a bill that now goes to President Rafael Correa for signature.
The law gives the government permission to make payments in 'electronic money', but decentralized digital currencies like bitcoin will now be prohibited.
The proposed electronic money is to be backed by the assets of the Banco Central del Ecuador, the nation's central bank. The National Assembly will oversee the new currency while the central bank will develop and integrate it into the broader financial system. The electronic money will operate in tandem with the US dollar, Ecuador's official currency, although it is not certain what exchange rate will be established.
Following the final tally, the National Assembly issued a statement declaring that the new electronic money would offer benefits to both the underbanked and the broader economy, saying:
"Electronic money will stimulate the economy, it will be possible to attract more Ecuadorian citizens, especially those who do not have checking or savings accounts and credit cards alone. The electronic currency will be backed by the assets of the Central Bank of Ecuador."
Community voices concern prior to vote
Prior to the debate on amendments that instituted the decentralized digital currency prohibition, members of the local bitcoin community sought to shape the final outcome.
In an open letter from La Comunidad Bitcoin Ecuador, the country's largest bitcoin organization, members urged the legislature to allow for transparency and respect for the rights of consumers when creating a new digital currency, saying:
"Ecuador, as a pioneer in the creation of a digital state-run currency, must use methodologies that respect fundamental rights. The digital-currency system must be verifiable, and its code must be published as free software, to ensure the system's privacy through algorithms."
CoinDesk reached out to the organization for comment but did not receive an immediate response.
Impact on industry immediate
With the bill passed and sent to President Correa's desk for what is expected to be a speedy approval, the impact on the bitcoin industry in Ecuador is now clear.
Companies offering digital currency services will have to withdraw from operations or cease entirely, as the bill prohibits the "emission, production, initiation, falsifications, or any other type of [digital currency] simulation, and its circulation through any channel or way of representation" of non-sanctioned digital currencies, according to the PanAm Post. This includes BitPagos, which recently raised $600,000 and had plans to grow in Ecuador's bitcoin market.
The amendments laid out the legal framework for those who violate the ban, which establishes the power to confiscate bitcoins or similar holdings. Those who operate businesses using prohibited digital currencies face the risk of prosecution as well.
What remains to be seen is how the Ecuadorian public, including those who had already begun using bitcoin, will respond to the new electronic money. Its final form and level of transparency will no doubt have an impact, given the concerns stated in La Comunidad Bitcoin Ecuador's letter.
At the same time, it's possible that the regulations may not, in practice, prohibit decentralized digital currencies. Paul Buitink, who runs bitcoin information site deBitcoin.org, told CoinDesk that the exact legal definition of bitcoin in Ecuador is not clear, meaning that the amendments don't cover bitcoin.
"With money, do they mean the legal tender dollar? Or any kind of other money? Is Bitcoin money at all? Etc. Also it doesn't say you can't accept it as merchant or use it as a consumer. So it's very broad, albeit worrisome."
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