Congress last month approved legislation to start a digital currency for use alongside the U.S. dollar, the official tender in Ecuador. Once signed into law, the country will begin using the as-yet-unnamed currency as soon as October. A monetary authority will be established to regulate the money, which will be backed by “liquid assets.”
Less than six years after repudiating $3.2 billion of its dollar-denominated debt, Ecuador has dwindling oil reserves, with current-account deficits that are draining dollars from the economy and financing needs at a record. While using virtual money to pay government workers and contractors would help conserve hard cash, the currency may prompt Correa to boost spending even more and undermine the nation’s ability to repay long-term bonds, according toLandesbank Berlin Investments.
“This is usually the start of debasement, inflation and depreciation,” Lutz Roehmeyer, who helps manage about $1.1 billion of emerging-market assets at Landesbank Berlin, including Ecuadorean debt, said in an interview.
Roehmeyer, who’s been investing in Ecuador for more than 15 years and correctly predicted its last two
