El Salvador rocked the Bitcoin community, and left the world banking class confused when it announced it was going to adopt Bitcoin. In some ways it is the pipe dream of every Bitcoin fan, getting a country to adopt the cryptocurrency as legal tender. And thanks to President Nayib Bukele’s super-majority in the El Salvadoran legislature, someone achieved it.
El Salvador isn’t the first country to try to promote cryptocurrency, but it is the first to make it a main legal tender. It is also doing it of it’s on volition. Unlike Venezuela’s cryptocurrency that was a pet project of Russia, and was doomed to fail. El Salvador, by using the cryptocurrency rather than trying to create a new one, is better positioned than other attempts by other nations. There are some logical reasons for El Salvador to advance this law; it is dependent on the USD and if the past four years have shown, that’s not the most stable country to connect yourself to. There are also the post colonial arguments for abandoning a colonial currency. Bitcoin could help El Salvador advance as a country on it’s own.
But there are still roadblocks. 77% of the country is not supportive of the bill that was rushed through the legislature. They are worried about the stability of Bitcoin — which is a valid concern. Bitcoin is very volatile compared to the USD. The country will also face opposition from the international banking order. The IMF has expressed skepticism (although the President claims the IMF’s worries have been alleviated), and the World Bank refused to assist El Salvador in the implementation of Bitcoin. This is to be expected though, the global leisure class will always fight against change and erosion of their power.
I’ve often talked of post-colonialism and the role Bitcoin can and should play in combating it. Although we have moved beyond the Age of Explicit Imperialism, this post-colonial world is still very weighted towards the former imperial powers. Developing nations in Africa or Central America have to compete with already established American, European and Chinese companies, products, and most importantly, banks. This makes for a very uneven playing field. Countries have to often use USD for international trade, which means they have to try to get USD in several ways and are often beholden to international banks as a result.
El Salvador had a rough 20th Century. It went from depressions to civil wars throughout, and as it entered the 21st Century it wanted change. It abandoned it’s old currency the Cólon and adopted the USD instead. It largely did this to position itself closer with the US and give it better access to global trade.
President Nayib Bukele came to power in 2019 sweeping the legislature as well. The first President that hasn’t come from one of the two main parties, his center-right coalition has been quick to try to fulfill promises of change. As he moves to consolidate power, he recently sacked several judges, he has presented himself with the chance to perform an astounding experiment. His bill to replace the USD with Bitcoin was rushed through the legislature in a mere 6 hours. It was met with cheers from the internet.
Bitcoin could position El Salvador quite well. It can now bypass the banks, and isn’t beholden to the whims of the US Fed. It now has a currency it can acquire and use without international colonial influence. The monetary elite have reacted accordingly. The World Bank and IMF both expressed concern with the move and suggested El Salvador stick with the USD. The World Bank refused to help El Salvador with the transfer process, citing environmental and economic concerns. They can feel their power over El Salvador starting to wane.
In the end, there might not be much World Bank and IMF can do. Rules in the organizations require that they hold legal tenders of any member, meaning they might have to put in policies and infrastructure to accept Bitcoin anyways. This infiltration could see Bitcoin becoming more accepted as an international currency on a larger level.
That is not to say the move is not without trouble. Although there is an argument that Bitcoin can “bank the unbanked,” as it seems the President wants to do, a large number of El Salvadorans don’t have internet access. That is a huge problem, because Bitcoin needs the internet to function. The people also do not seem to support the bill. Many critics have come out, protesting in the capitol despite the current ban on protests. They worry their paychecks could disappear in a day because of fluctuating prices.
They have a right to be worried. It is far different when you are in a good financial situation, and not all of your assets are in Bitcoin. If you are living from pay check to pay check, you need some sense of stability. In previous areas where Bitcoin has helped people, like Cuba or Zimbabwe, few people hold all their money in Bitcoin. Instead it offers an ability to bypass sanctions or a currency experiencing hyperinflation.
On the other hand, El Salvadorians could also benefit from the other side of Bitcoin instability, the rapid price increases. They could see their paychecks doubled on a good day.
The government is working to provide the people with infrastructure to appreciate Bitcoin. It is developing it’s own wallet, with the help of Bitcoin companies, as well as using the app to make payments easy. It will be seen whether El Salvador will follow through. Many critics think President Bukele is just trying to ride the wave of PR, which is probably true, but that he will fold before the law actually comes into effect.
If he doesn’t though, one of the greatest economic experiments the world has ever seen will have begun. I can’t wait.