Is Ecuador dropping the US dollar by creating state-backed digital currency?

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Ecuador is planning to create the world's first digital currency issued by the country's central bank, in what is seen by many as a step to abandon the US dollar, the currency now used by the Central American country.

The currency is expected to start circulating in December, according to the country's Central Bank.

The technical details or the name of the currency have not been revealed, although the officials stated that it would not be a crypto-currency like Bitcoin.

The new currency is expected to co-exist with the US dollar, the current official money Ecuador uses, and will be channeled for 2.8 million people in the country - 40 per cent of the participants in the economy - who are too poor to afford the usual banking.

Use of the currency will be voluntary, and it will not be used to pay the state employees.

It will be possible to make and get payments via cellphones, Central Bank's deputy director Gustavo Solorzano told AP.

The software needed for the currency to function is already being used by cellphone companies, according to the official responsible for the currency, Fausto Valencia.

The country's President Rafael Correa declared that the only issue with the plan is that it has taken so long, defending it against "pseudo-analysts who have appeared in the media trying to smear (it)." Correa denied any plan to replace the US dollar.

Last month, other digital currencies like Bitcoin which are not approved by the state were prohibited in Ecuador by the country's National Assembly.

The disadvantage of the new currency would be that, unlike Bitcoin,

an unlimited amount of it can be minted

, creating potential risk of inflation.

Some specialists also regard the move as a step towards giving up the US dollar funds.

Nathalie Reinelt, an emerging payments analyst with the US-based Aite Group, told AP that she doesn't see any other motivation for creating such a currency.

The US dollar was set as the Ecuadorian currency in 2000, after a massive banking crisis hit the country. Even nowadays, the country is $11 billion in debt, mostly to China.