Focus: E-Currency

Next stop: Financial inclusion

Next stop:  Financial inclusion

Sep. 16, 2015

Ecuador has developed the first-ever state-run electronic money system in order to expand financial inclusion among the most vulnerable sectors of the population.

Seeking to boost financial inclusion in Ecuador, the government has created an electronic payment system in the country, the world's first digital currency issued by a central bank. Through the Central Bank of Ecuador (BCE), electronic money will be the means of payment in shops, restaurants, financial institutions and public institutions. 40% of Ecuador's population—2,800,000 citizens—lack access to a bank account, the main reasons being poverty, extra financial costs, distance, and bureaucracy. According to the World Bank, 59% of adults in developing economies lack an account in a financial institution, with a 41% print for Latin America and the Caribbean. To encourage wider access, the Electronic Payment System (EPS) guarantees all citizens, regardless of their economic or social condition, the opportunity to open an electronic money account and associate it with an electronic wallet. Taking into account that 99% of Ecuador's population has access to a mobile phone, these handsets will serve as an electronic wallet. To use the system, users will not require an internet-enabled smartphone, as the system works via SMS.

The initial phase of implementation began in December 2014, when citizens were given the green light to apply for an electronic wallet by using their mobile phones, the internet, or through authorized physical agents. The second phase, initiated in February 27, registered 12,000 active accounts in two days and enabled users to deposit and withdraw from their wallets, transfer from wallet to wallet, and make payment to participating establishments, with around 200 “transaction points" and 75 “macro-agents"—from financial institutions to public and private enterprises. As the central bank does not have a retail presence, these locations will facilitate transaction activities while also receiving a fee. The government is hoping to increase the number of participating locations to 12,000 in the near future. These locations are banks, public institutions, supermarkets, shops, pharmacies, and public companies, among others. Furthermore, the BCE signed an agreement on February 2015 with the National Federation of Taxi's Transport Operators of Ecuador (Fedotaxi), and another on April 2015 to allow payment through the EPS for public transport cooperatives around the country. The third phase, aimed to commence the 2H2015, will allow users to pay for public services, such as electricity, water, taxes, and so on. Each individual can have up to three mobile phone lines to make their transactions, with a maximum quantity of $2,000 per month. Meanwhile, corporate entities can access 10 mobile phone lines, with a maximum of $200,000 per month.

According to the BCE, the objective of digital currency is to administrate, manage, and implement an electronic money system that improves financial inclusion in the marginal sectors, therefore having a positive effect in the reduction of poverty and in other economic and social aspects.

The main beneficiary of the new system will be the young population, which is one of the groups farthest from financial inclusion. Also, the country stands to save around $3 million every year by not having to change old or damaged notes for new ones. Other benefits of the EPS are reducing costs and expediting transactions, as well as generating information on the unbanked population for inclusion within the economy's formal system so that they more effectively benefit from governmental programs. And finally, the goal is to boost Ecuador's Popular and Solidarity Economy—an economic alternative to the capitalist model, which represents 25% of the domestic market. In this manner, this tool will help other programs run by the state to spread wellbeing among the most vulnerable segments of the population. The EPS will allow the creation of new economic networks in which they can broaden markets for their products. Ecuador, then, is a prime an example of a developing economy looking to defeat financial exclusion, not only in the region but also in the world.