Bitcoin in El Salvador, have the neighbors gone crazy? | UFM Talks

Isabel Cacacho  | 17 de agosto de 2021  | Vistas: 44

Bitcoin has been a phenomenon ever since it came to light. Its rapid growth has shown how relevant and popular the concept of a decentralized coin is for the global economy. Created under the idea that there would be no interference with its trading, including from governments, it became a highly secure form of exchange, giving its users a sense of freedom. So, what happens when a government decides to have a certain intervention with it? That’s what everyone is asking after the president of El Salvador, Naib Bukele, declared Bitcoin as the country's official tender. In this conference, Olav Dirkmaat and George Selgin discussed the consequences of implementing this currency in the country’s economy, the terms of the law imposing it as legal tender, and answer the subject in question: have the neighbors really gone crazy?

Dirkmaat explains a little on population statistics in El Salvador, indicating that only a small percentage of the people have access to bank accounts, online banking, and even cellphones and the internet itself. Regardless, in June 2021, Bukele declared Bitcoin as a legal tender for El Salvador at a convention in Miami. The law was approved shortly after, to come to effect on September 7 of the same year, without much discussion. 

It became a controversial subject since El Salvador is the very first country to implement Bitcoin as a legal tender. According to several polls, the citizens would much rather continue using the US dollar as their currency. Specifically, they prefer to use paper money, instead of electronic alternatives like credit and debit cards, among others; so again, not many have the tools to access Bitcoin, to begin with.  

“Bitcoin was meant to be a rival for government currencies. Something that people could resort to entirely voluntarily,  as a way of not having to use official currencies.” - George Slegin

George Slegin later explains that furthermore than simply becoming legal tender, it’s being forced on Salvadorian merchants, as it is declared in article 7 of the law, to be precise. Even though those who don't have access to the tools to accept Bitcoin are excluded from the imposition, it is clear that the government is working and investing on many resources to make the platforms available, so that everyone is able to accept the currency leaving no other choice than to use it. 

During the discussion, they explain several characteristics of bitcoin itself, and its original purpose, to reinforce the controversy of applying the currency as an official tender of a country. Slegin describes cryptocurrency as a Hayekian phenomenon. Hayek argued against government money monopolies, stating that private institutions should have the option to use their own fiat-type currency of choice. Decentralized money, with no government interference. It seemed impossible back then, due to legal limitations that made it inefficient. However, with the internet came many possibilities that Hayek could not foresee. Yet, Bitcoin is a specialized type of money that not many people choose to adopt. It requires research and knowledge to deal with since it is an extremely volatile asset. Against the dollar, it fluctuates tremendously in short periods of time, making it harmful for people to use it forcibly, since they will have to retain it for longer, when in fact it can depreciate and appreciate in just a few hours and cause unpredictable profits and losses. 

“The fact that bitcoin value has gone up,  its market capitalization is very high, and many people, including very serious banks, are treating it as an important financial asset, does not mean that it is becoming money or widely used for ordinary payments.” - George Slegin

In conclusion, they argue that applying bitcoin to a country's economy is a bad and harmful idea in a Hayekian and philosophical standard, and state that it would only become a good law if the initiative would not force Bitcoin on the citizens, and it would be treated and leveled up to competitive standards with the dollar itself. Regardless of the intentions, Bukele had to impose this currency in El Salvador, this initiative was taken without any urgency to change away from the dollar, without much consideration or questioning from the parties involved in its approval, and most importantly, without the consent or agreement of the people from El Salvador.