Will It Be A Win-Win For Country And Currency?
Editor’s Note: In June, the World Bank rejected El Salvador’s request for help in implementing Bitcoin as the country’s legal tender. But that didn’t stop El Salvador’s ambitious leader, President Nayib Bukele, from making the cryptocurrency the country’s national currency. Corresponding writer Ernesto Rodriguez examines the prospects for the country and currency in this report.
September 23, 2021—It’s been a few years since cryptocurrency, and especially Bitcoins, appeared as a new exciting prospect in the world of economics. Since then, it has become an important part of the economic conversation, with some people worried about the lack of transparency they represent and others praising the freedom they see in a currency not regulated by governments.
That lack of regulation is probably what Nayib Bukele, the controversial president of El Salvador, saw in Bitcoin when he decided to make them a legal currency of change inside his country. It was a decision that was rushed through Congress and widely criticized inside the country. It left some of its citizens feeling their country could become a test lab for tech companies and crypto geeks.
Still, it’s an interesting development in how the idea of cryptocurrency has developed. While most economists have stopped seeing crypto as a mere curiosity, some still feel like its price is a bubble. And, like any bubble, there’s always a chance it might burst.
Price Swings
It’s not like they don’t have any evidence of that, after all a tweet by Elon Musk dropped the price of Bitcoins for a few weeks, and the prices of crypto coins started as jokes, like the now-famous Dogecoins, becoming extraordinarily high.
That being said, the official backing of a government, even one as controversial as Bukele’s, the government could help cryptocurrency in general and Bitcoin especially to gain some credibility between the skeptics. While the launch was bumpy the Salvador government created its own official Crypto wallet, with its app included.
It’s a gamble. But if it helps the country’s economy grow, it could be a big political win for the whole cryptocurrency movement.
El Salvador: Not A Sterling Partner
Of course, there’s also the chance that being connected to Bukele’s government could become a double-edged sword. More and more his government has turned totalitarian, and the way in which he passed the approval of Bitcoins as an official coin spurred an eruption of protest in the streets.
(On the U.S.-based Freedom House rankings, El Salvador is considered “partly free.” Widespread corruption undermines democracy and the rule of law.)
Risks for Bitcoin
Being tied to a government that the world sees more and more as dictatorial could cause irreparably damage to the way most people understand cryptocurrency. The currency is already viewed by many as the top choice for international criminals. The U.S. head of the Securities Exchange Commission, Gary Gensler, recently called out the currencies as being “rife with fraud, scams and abuse.”
El Salvador’s adoption may cement the concept of the currency with that of dictatorships. Or, it could spark a novel trend.
After all, whose leader just changed his Twitter bio to say he’s the “Coolest dictator in the world.” He probably as a joke, but still. It says a lot about where he’s taking his country.
Legal Crack Down Or Constraints Possible
If it inspires other dictatorial leaders to follow suit, democratic governments could get more active in finding ways to control them and even apply sanctions against them.
Just this week, the U.S. government announced sanctions against a cryptocurrency exchange that facilitated ransomware payments.
A Double Risk
It’s a weird situation, and for what it’s worth the decentralized nature of cryptocurrency also means that there’s really not much they can do. Even if the Bukele administration decides to fill the country with crypto farms, it could cause problems for Bitcoin, it’s value, and its distribution.
Being adopted by a government is an experiment for Bitcoin as much as it is for El Salvador. And while both sides would do well to be cautious, it could mean big wins for both.
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