I never really understood what incentive a government had to recognize bitcoin as legal tender. There are no real benefits over something like UPI in terms of user UX. It takes things out of the government's hands, as it's harder to print money.
El Salvador is a USD-based economy and does not have their own currency. This means they're at the whims of the US Federal Reserve, which they have representation with. And any USD reserves that are abroad can be seized by the US, as Afghanistan ($7B seized) and Russia ($300B seized) learned recently.
Bukele is promoting BTC as a way to attract talent and capital, and also to modernize El Salvador's economy. Similar to how Africa skipped landlines and jumped right to mobile phones. It remains to be seen how effective that part is. But, either way, it gives El Salvador some more independence from the US and sovereignty in a world where alliances are shifting fast.
> And any USD reserves that are abroad can be seized by the US
That doesn't have anything to do with USD. Any reserves (or really any asset) that is outside the country's jurisdiction can be seized by a foreign one. El Salvador could as easily lose all their Bitcoin reserves if they held them in a Coinbase wallet, for example.
This is because the Taliban is a terrorist organization that captured the capitol, not a government. You don't give $7bn to al qaeda, ISIS or lashkar-e-taiba either.
You can thank Trump and Pompeo and their plan to withdraw 100% of US forces by a fixed deadline for that (removing all support for the afghan government's armed forces), and Biden for going along with the foolish plan.
It's a patently stupid strategy over the long run though. Abandonment of ones own currency is suicide regardless of whether it's USD or Bitcoin. And clearly, Bitcoin did not help El Salvador improve it's financing situation: the Bitcoin bond they tried to push was a complete flop. Argentina has a way better model: they control their money, they've defaulted repeatedly, the currency has magically remained stable, and everyone comes back after each default.
Another massive issue is that as a currency with an inelastic supply Bitcoin price volatility is guaranteed to remain unstable. This is not a desirable feature for any currency.
The wrong (but popular) answer is to say that this is a move to break El Salvador's reliance on the USD--the USD still remains legal tender in El Salvador, and from what I can tell, there is absolutely no movement whatsoever towards things like pricing in Bitcoin in lieu of USD or other steps that would insulate El Salvador from US monetary policy.
The charitable answer I would give is that Bukele hoped to attract cryptocurrency investors with the move, perhaps to supplement existing institutional investors who haven't been happy with some of Bukele's policies.
The uncharitable answer I would give is that Bukele is trying to innovate and translate core cryptocurrency strategies of extracting money from people's pockets into extracting money from El Salvador's citizens' pockets.
> never really understood what incentive a government had to recognize bitcoin as legal tender
El Salvador is very corrupt, in the neighborhood of Sierra Leone and Algeria [1]. It is unclear to what degree the state has a monopoly on violence [2]. Bitcoin is a precedented dark money channel.
History has repeatedly shown that being able to print money is a critical tool during financial crises. No one likes their money being debased, but they like economic depressions even less.
There is a reason that nations have abandoned the gold standard.
I am not sure what libertarian really means but the idea that the rich of the past deserve to control the present and future strikes me as secretly authoritarian.
In addition, bitcoin limits government power. Most autocracies fund their operations with inflation. Even in liberal democracies, deficit spending funded with inflation is not really what people have voted for. People are fine with taxes to the extent they have voted for them, but that should be enough. Inflation is a way to covertly siphon wealth from citizens on top of tax revenues.
thesausageking|3 years ago
Bukele is promoting BTC as a way to attract talent and capital, and also to modernize El Salvador's economy. Similar to how Africa skipped landlines and jumped right to mobile phones. It remains to be seen how effective that part is. But, either way, it gives El Salvador some more independence from the US and sovereignty in a world where alliances are shifting fast.
paxys|3 years ago
That doesn't have anything to do with USD. Any reserves (or really any asset) that is outside the country's jurisdiction can be seized by a foreign one. El Salvador could as easily lose all their Bitcoin reserves if they held them in a Coinbase wallet, for example.
walrus01|3 years ago
This is because the Taliban is a terrorist organization that captured the capitol, not a government. You don't give $7bn to al qaeda, ISIS or lashkar-e-taiba either.
You can thank Trump and Pompeo and their plan to withdraw 100% of US forces by a fixed deadline for that (removing all support for the afghan government's armed forces), and Biden for going along with the foolish plan.
0xB31B1B|3 years ago
fny|3 years ago
Another massive issue is that as a currency with an inelastic supply Bitcoin price volatility is guaranteed to remain unstable. This is not a desirable feature for any currency.
jcranmer|3 years ago
The charitable answer I would give is that Bukele hoped to attract cryptocurrency investors with the move, perhaps to supplement existing institutional investors who haven't been happy with some of Bukele's policies.
The uncharitable answer I would give is that Bukele is trying to innovate and translate core cryptocurrency strategies of extracting money from people's pockets into extracting money from El Salvador's citizens' pockets.
JumpCrisscross|3 years ago
El Salvador is very corrupt, in the neighborhood of Sierra Leone and Algeria [1]. It is unclear to what degree the state has a monopoly on violence [2]. Bitcoin is a precedented dark money channel.
[1] https://www.transparency.org/en/cpi/2021/index/slv
[2] https://www.cfr.org/in-brief/why-has-gang-violence-spiked-el...
Spellman|3 years ago
andrewmutz|3 years ago
There is a reason that nations have abandoned the gold standard.
dragontamer|3 years ago
unknown|3 years ago
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imtringued|3 years ago
Geee|3 years ago
overtonwhy|3 years ago
el-salvador|3 years ago
El Salvador banks don't exchange or accept bitcoin as deposit. Some of them accept bitcoin for loan payments, via an external payment processor.