Ecuador became the second country in history to introduce a Central Bank Digital Currency (CBDC). In 2014, it launched its own digital currency called “dinero electrónico” (DE), which unfortunately did not gain enough traction and eventually ceased to exist in 2018. Rather than being tied to a national fiat currency, DE was pegged to the United States dollar. Throughout its operation from 2014 to 2018, DE reached a peak of 500,000 users out of a population of approximately 17 million people.
The primary motivations behind the launch of DE were to enhance financial inclusion and reduce the necessity for the central bank to hold and distribute large quantities of physical currency. Understanding the history of currency in Ecuador is crucial to comprehend why the initiative ultimately failed.
Ecuador experienced a severe hyperinflation of its domestic currency, the sucre, in 1999. As a result, the population embraced the US dollar as their currency of choice. In January 2000, the government officially adopted the US dollar, establishing a fixed exchange rate between the sucre and the dollar and eliminating the sucre from circulation.
A survey conducted by Econestad in 2011 revealed that an estimated 82% of all retail transactions in Ecuador were conducted using cash, with only 10% being settled through bank transfers. The failure of the DE project can be attributed to the public’s lack of trust in the central bank, stemming from previous instances of government defaults. Furthermore, the government had defaulted on bond issues just a few years prior to the launch of DE.
Source:
https://www.sciencedirect.com/science/article/pii/S2666143821000107