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Ecuador has banned digital currencies including bitcoin, but is looking to create a state-run digital currency, taking cues from modern cryptocurrency technology.
An amendment to the country's existing monetary and financial laws approved by the National Assembly of Ecuador bans all decentralised digital currencies. The amendment was approved by 91 members, and President Rafael Correa will now sign the bill into law.
However, the new law gives the government permission to make payments in electronic currency and proposes the creation of a national digital currency, which is backed by the assets of the central bank, the Banco Central del Ecuador.
The central bank will develop and integrate the new currency into the country's financial system. Ecuador is currently using the US dollar as its official currency.
"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," the National Assembly said in a statement.
The development comes as a severe blow to bitcoin businesses in the country, which would be required to shut down their operations all of a sudden.
The law prohibits decentralised digital currencies' "emission, production, initiation, falsifications, or any other type of simulation, and its circulation through any channel or way of representation".
Those who violate the ban will face prosecution and they all their bitcoins or similar holdings will be confiscated.