Friends have asked what my thoughts are about El Salvador adopting BitCoin. My auto-generated response was “um, I’m not sure but I don’t think it is a good thing.” In an attempt to better understand Bitcoin in El Salvador, I will now answer some questions that have come up.
- “What even is BitCoin? Oh cryptocurrency, yeah, what’s that?”
Bitcoin is a form of cryptocurrency or digital money. It doesn’t exist in physical form and is exchanged using the Internet. Now, you might say that regular money can be exchanged using the Internet. “How is that not the same thing?” you might be asking, but only my follow-up questions are allowed.
Bitcoin started anonymously in Japan in the midst of the 2008 financial crisis. The founders and followers of crypto believe in a myth, as we all do (money is fiction after all), that money can operate best outside the control of government. There is a reason for this, but first a little more context.
See, a long time ago money was linked to gold. This was known as the “gold standard.” The amount of money floating around in the world was linked to the amount of gold the government kept locked away in a secured vault. In 1971, Nixon completely abandoned the link to gold. This meant that the value of money was now determined by a number of factors including the decisions of some bureaucrats in DC. At times, more money is added, meaning that the value of money goes down, and at times there is less money and the value goes up. These adjustments that the government can make have an impact on people, making these decisions inherently political.
The founders of crypto believe that the government should not make these adjustments. That money should be apolitical and that instead a computer or an algorithm should make these adjustments (even though this is still inherently political because it still has an impact on people). Records are kept in what is called a “blockchain” and these exchanges are verified, a practice called “mining,” which requires supercomputers and an insane amount of energy.
- “Can it be used to purchase things or pay bills?”
Yes, it is now an official tender in El Salvador, meaning it needs to be accepted everywhere. Elsewhere in the world, there are some vendors that will accept bitcoins as a form of payment, but you can also exchange it to cash using an app that will transfer the value of your coin to your bank account. El Zonte, a small beach town in El Salvador, has been operating with bitcoins for the past two years. Of course, one has to have access to a smart phone and reliable internet in order to participate effectively.
- “Why did El Salvador adopt BitCoin as a national currency?”
This is a very complicated question with answers coming from multiple perspectives (economics, governance, or social). The rhetoric of the president of El Salvador, Nayib Bukele, is that El Salvador is looking towards the future. Bukele predicts that Bitcoin will only get bigger, although it is actually currently in a slump. In his own words, the Bitcoin system is “so perfect” in comparison to the global monetary system (this gets back to the ideas of the Bitcoin enthusiasts highlighted in question 1). He doesn’t quite spell out what makes this system so perfect, but he does point out what might be some of the advantages of using Bitcoin. He highlighted instant remittance transfers with no transaction fees, for example.
- “Will it be good for the Salvadoran economy?”
Maybe. This shift might provide a boost in the short term, but in the long run it benefits a small class of finance techies who will only get richer. Some economists point out that Bitcoin is a classic economic bubble, but as I pointed out in question 3, we may be seeing this bubble beginning to deflate. Additionally, crypto represents such a small fraction of the overall financial sector which does most of its business in dollars. Even if Bitcoin creates some sort of economic miracle, we have to keep in mind that this will do very little for the vast majority of people. Just look at the conditions under covid; the economy is doing great, but working people are not.
- “Why did the president post a picture of himself with laser eyes?”
He is a dork.
- “Is this a way to privatize the economy?”
Yes! Naomi Klein and other journalists have written extensively on the role of crypto investors or crypto-colonizers who attempted to transform Puerto Rico into a crypto-utopia. Their reporting showed that more than anything, these poorly dressed individuals were looking simply for tax havens where they could store their money. The idea was to create a paradise for crypto millionaires and billionaires—looks like El Salvador beat them to it.
- “Is this connected to promoting tourism in El Salvador?”
This is totally clear and Bukele doesn’t shy away from this. Bukele sees this as one way to invest in tourism that is centered around exploiting the beautiful beaches and El Salvador’s emerging surf scene. What follows next are the capitalist gringos, the luxury hotel industry, the fancy restaurants, all catered to the foreigner who wants to vacation in the tropics without worry of the gang violence. Who knows, maybe all that will trickle down into a low-wage job in one of those fancy hotels for your average Salvadoreño.
- “But didn’t Venezuela adopt a form of cryptocurrency?”
Venezuela has been dealing with hyperinflation, meaning there is too much of their currency, the Bolívar, floating around causing the prices of goods to go up. Additionally, over the past 15 years, the government has been hit with U.S. sanctions and a violent opposition which continually declares itself in power without having won a single election. A Venezolano programmer, now living in Oakland, assisted the Bolivarian government in developing its own crypto, the Petro, and has stated in interviews that he saw this as a “trojan horse.” A way to bring about reforms that the opposition has been seeking from within. Unlike El Salvador, which made it a national currency, the Petro, by all accounts, is used to purely deal with the issue of inflation. We will see whether that changes in the future.
- “Is this a form of Universal Basic Income?”
The government has developed its own app, the Chivo Wallet (chivo being slang for cool), which will be made available in September of this year. The “wallet” will be able to hold and convert Bitcoins and dollars without any transaction fees. President Bukele announced that every Salvadoran who downloads the app will receive $30. As he pointed out, for a large portion of the population who do not have a relationship with a bank, this is a positive. This could be seen as a form of universal basic income (UBI), a program that some economists have been calling for to deal with issues of poverty in which people are given free money with no strings attached. The idea has been experimented globally, even nearby in Stockton, CA. Chivo doesn’t quite fit the definition of UBI, as it is a one-time small amount when you first download the app. It also can’t be cashed for dollars. In order for it to qualify as UBI, the government would have to provide monthly payments of a larger sum without strings attached. Now that would be forward thinking. I’m sure the señora selling pupusas wouldn’t mind a $150 Bitcoin monthly infusion.
- “Without its own currency, why didn’t El Salvador develop its own crypto?”
Bukele doesn’t offer a valid explanation for this. He even states in an interview that developing its own crypto might be good monetary policy, LOL. He seems to believe that Bitcoin will become a sort of universal currency that eventually will overtake the dollar (not if China has anything to say about it). El Salvador hasn’t printed its own money since the right wing government replaced the colón with the dollar back in 2001 and it looks like it may never happen.
All these decisions about currency whether it is crypto, the dollar, or the colón, have real impacts on people. To answer a question with a question—What determines real value (in the economic sense)? To me the answer is really simple. You do. The worker, the nurse, the caretaker, the teacher, the mother of three children. And until our own economies focus on us, well, Jeff Bezos will continue flying to the moon.