El Salvador launches Bitcoin experiment (Sept 7, 2021)
El Salvador became the first country in the world to adopt Bitcoin as legal tender today -- a move that has rallied the international cryptocurrency community, and raised hackles among experts in El Salvador and in the traditional financial sector. Its adoption will be closely monitored by crypto advocates, global financial institutions and governments around the world, notes the Wall Street Journal. (See also El Diario de Hoy and New York Times.)
El Salvador's President Nayib Bukele announced the move in June, which was then approved at lightning speed by the National Assembly. (See June 10's post.) Bukele has touted the adoption as an opportunity to bring more Salvadorans into the formal economy, and to make it cheaper and faster to receive remittances from abroad. Skeptics are concerned the measure could add volatility to El Salvador's fragile economy, and could be abused by criminal organizations laundering illicit funds. Economists say the government has neither the policy tools nor the financial firepower to contain a speculative attack, and the move could jeopardize El Salvador's tax revenues and foreign currency reserves.
The government will spend more than $225 million to kick off the country's Bitcoin conversion, including a $30 credit in bitcoin to those who take up Chivo, slang for “cool,” a government-run e-wallet. El Salvador's government announced 200 bitcoin purchase last night, which brings the government’s total holdings to at least 400, the equivalent of roughly $20.5 million in crypto based on this morning’s price. (Gizmodo)
The new law stipulates that all businesses must accept Bitcoin as payment. The government will also create a trust with $150 million dollars in public funds to facilitate dollar conversions, among other things. But it's not clear how many Salvadorans, only a third of whom use the internet, will actually adopt the new currency.
For observers concerned about Bukele's authoritarian slide, the move is just one more in a series of actions that consolidate presidential power, reports the Los Angeles Times. In recent days, Bukele-appointed Supreme Court justices cleared the way for him to seek reelection in 2024 (see yesterday's post), despite a constitutional ban on consecutive presidential terms, and lawmakers passed a law to remove one-third of the nation’s judges and prosecutors (see last Thursday's briefs). “The regime has very powerful control,” Noah Bullock, executive director of Cristosal, told the New York Times. “He is everything.”
Meanwhile, his supporters in the Assembly passed a law to remove one-third of the nation’s judges and prosecutors — an apparent response to Bukele’s public calls for a “purge” of the judicial branch.
Indeed, while the big story internationally is cryptocurrency, nationally the issue is erosion of democracy, notes James Bosworth at Latin America Risk Report. Though the experiment may bring about long-term benefits for El Salvador, in the short-term "worst case outcome, a corruption or human rights scandal undermines the whole project."
Bukele remains wildly popular, though less so than earlier in his mandate: 76.4 percent according to a new Institute for Public Opinion at the University of Central America poll. (El Salvador Perspectives)
More El Salvador
El Faro reports on the team of Venezuelan political operators who are key players in the deployment of El Salvador's bitcoin project.
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