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Ecuador’s New Digital Currency Raises Concerns Over Money Laundering Prevention

As Ecuador prepares to launch its cellphone-based digital currency, known as the Electronic Money System (EMS), questions remain over whether it has sufficient safeguards to prevent criminals from using it for money laundering.

Aims to Increase Financial Inclusion

The EMS, touted as an electronic form of the US dollar, aims to widen access to financial services for around 40% of Ecuadorans without bank accounts. The system allows users to sign up at a transaction station, show their ID, and physically trade in US dollars, which can then be sent via mobile phone to other individuals or businesses.

Concerns Over Money Laundering

Early concerns that the system could be used for money laundering prompted the government to announce transaction limits of $2,000 per month and $300 per day for individual users, with higher limits for companies. However, experts remain cautious, citing the potential vulnerabilities of digital currencies in general.

“The Electronic Money System is not a magic bullet against money laundering,” said Luis Mejia Montesdeoca, former Deputy Finance Minister. “We cannot know if it will have a positive effect in the fight against money laundering.”

Measures to Track Transactions

Despite these concerns, the Central Bank of Ecuador (BCE) has implemented measures to track transactions and monitor unusual activity. However, some experts argue that centralization is not necessarily a guarantee against illegal use.

“We have a whole department dedicated to monitoring [unusual transactions]. It will be very easy to track electronic money in this system,” said Faustino Valencia, who oversees the program for the BCE.

Privacy Concerns

The Electronic Money System has also raised privacy concerns due to its ability to track every transaction made. Critics point out that Ecuador’s dollarized economy makes it vulnerable to money laundering, with large amounts of physical cash leaving the country illegally.

Conclusion

Whether Ecuador’s new digital currency will be used for criminal activity remains to be seen, but it certainly may avoid pitfalls seen in other digital currency schemes. Only time will tell if the Electronic Money System will be a successful tool in preventing money laundering or just another means of illegal transactions.