El Salvador’s sudden recognition of Bitcoin as legal tender may be one small step that leads to one giant leap for the global economy. Somewhere in between, however, things could get ugly as the IMF, World Bank, and the US get involved.
The 39-year-old president of El Salvador, Nayib Bukele, moved with a swiftness in favor of his nation’s interest when he signed Ley Bitcoin (The Bitcoin Law), which goes into effect September 7, mere days after introducing it to the Salvadoran legislature.
That political vigor will be tested if the International Monetary Fund declines the country’s request for a $1.3 billion loan to spur its economy. The World Bank has already refused to help the Central American country implement its Bitcoin acceptance infrastructure over “environmental and transparency shortcomings.”.
Meanwhile, the US State Department advised the country to be “responsible” about its Bitcoin adoption.
If those are the sorts of threats and sacrifices that a country has to endure when going against the global monetary regime, then it’s almost all thanks to the power of Bitcoin that we’ve come so far since the days of bombing Middle Eastern countries that dared to go off the petrodollar.
Even if Salvadorans are punished with sanctions, that may only increase the attraction to Bitcoin. A fight is still a fight, however. Avanti Financial Group CEO Caitlin Long, who helped craft Wyoming’s favorable cryptocurrency regulations, believes big challenges lie ahead.
Certainly, Bitcoin shouldn’t be seen as the savior of El Salvador. Bukele inherited a mess of a country when he was sworn in last year.
According to the popular outdoor blog Atlas & Boots, El Salvador is seen as a “high security risk” country. For many years it was among the most dangerous countries in the world, though since 2015, its homicide rate has consistently fallen. Last year, it fell to an historic low of 20 per 100,000. But that’s still double the worst homicide rates in some US cities.
On the other hand, Bitcoin could have a wider reaching impact than the economy. It’s proven to be a good hedge against inflation so far, and as a hard money that isn’t inherently a liability on society, it can encourage lower time preference in social behavior as well as economic choices.
Only time will tell, but it seems inevitable that relatively soon, Salvadorans will be saving bitcoin as it’s cheaper to send and receive than US dollar-denominated remittances. In 2019, $6 billion in remittances to the country made up around 20 percent of GDP. Many people there are ripe to become bitcoiners, because they have no bank account but do have a smartphone.
Small countries might not be able to make a sea change on their own, but opening up the conversation on Bitcoin adoption at the national level cannot be underestimated.
Back here in the United States, it might be time for more states and localities to go in the direction of Wyoming or even further. The runaway printing of fiat money in the US and abroad has finally met its match in Bitcoin. It’s a tool nationalists and other dissidents should pick up and run with.
El Salvador is just part of the snowball that got rolling 13 years ago, and now something like 150 million individuals worldwide have bought or used Bitcoin. What happens if another country, or countries, do likewise this year?
From China to the Federal Reserve, all the fiat powers of the world should be trembling right about now.
Very interesting! My tiny investment foray into Bitcoin and Dogecoin has been fun and I’ve learned a lot over the past year.
Praying that this dramatic change will improve the lives of the El Salvadoran people.