8 September 2021
Cogito Ergo Non Serviam
The Central American nation of El Salvador has made history by adopting Bitcoin as official, legal tender. The government has even created a Bitcoin digital wallet for citizens to use. The nation will continue to use the US dollar as well. The move by President Nayib Bukele will be one of the biggest economic experiments of this generation. However, the vagaries of crypto-currency suggests that failure is the most likely outcome.
The 40-year-old president is described as the first millennial president of the nation, and he is wildly popular. At the same time, he may have over-done it with Bitcoin. The Washington Post reported, "Bukele has enjoyed popularity ratings in the 80s and 90s, some of the highest in the region, even through the coronavirus pandemic. But critics say he has grown increasingly authoritarian, worrying civil society organizations and the Biden administration, which has prioritized strengthening democratic institutions and fighting corruption in Central America."
Adding to his authoritarian image is the fact that his party controls a super-majority in the national legislature. That means he was able to force through the removal of about a third of the nation's judges and a constitutional change that ended the ban on presidents serving consecutive terms.
It is the Bitcoin move that has upset many. "Everything he's done has been good, but not this," said Ulisses Edgardo Samayoa Villalobos, a 29-year-old street vendor. "He didn't ask the people. He doesn't see all the harm it's causing."
"For the Salvadoran people who could be affected, we don't want this currency," said Gladis Elizabeth Benítez, a 44-year-old who works as a market vendor. "Maybe it favors the companies and people with money, but for the middle, working and lower class, we feel this isn't going to benefit us."
The utility of any currency is directly proportional to the number of people willing to accept it. If the people are able to pay their taxes with it, and if the government is able to use it in its daily transactions, there is a chance of success. At the same time, it bumps up against Gresham's Law, which says bad money will drive good money out of the market. Put another way, people will not part with money that is a solid store of value but rather will spend money that is unstable in value.
In El Salvador, the US dollar is already in circulation. Is Bitcoin a better store of value than the US dollar? Is it more widely accepted? One doubts that the mighty buck is going to be ousted by Bitcoin. At the same time, it is entirely feasible that the little nation operates with dollars and Bitcoin co-existing.
The WaPo aso reported, "Alvaro Trigueros, an economist at the Salvadoran Foundation for Social and Economic Development, called making bitcoin legal tender 'unjustifiable,' and said it could cause an economic crisis.
"'The currency is unstable and sometimes it will increase and sometimes it will decrease,' he said. 'There's absolutely nothing we can do to tip the balance in favor of an increase or decrease. It's like playing at the casino. It's unknown.'
"From midnight to 11 a.m. Tuesday, the price of bitcoin fell nearly 23 percent to $42,830.77. It later rose above $46,000, a drop of about 13 percent."
The big problem with adopting Bitcoin is the inability of the El Salvadoran government to affect its value, which is precisely what supporters of crypto-currencies like. But as Greece discovered with the euro, a government that does not control its currency may well be controlled by forces that do.
©' Copyright 2021 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.