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Sprinkles from the Left

⏰🚀 Ready, Set, Go: These opinions take 1.44 minutes to read.

“It is still too early to judge where Bukele’s crypto experiment will go. But the risk of worsening governance and regulatory oversight in El Salvador is real, as highlighted by the International Monetary Fund, whose cautious stance on Bukele’s plans has raised fears it may turn down his recent request for a $1.3 billion loan. For all his worthy rhetoric of financial inclusion for impoverished Salvadorans and signs of a pick-up in remittances on which the tiny country depends for 20% of GDP, the courting of Bitcoiners as a source of investment feels like a “Move fast and break things” moment — in a bad way…

El Salvador has been here before. Twenty years ago, it adopted the U.S. dollar as a path to future prosperity but the results were disappointing. Given the role played by deeper, non-currency issues, such as corruption and governance, it’s possible Bitcoinization could go the same way — with the added headache of being yet another external force over which Salvadorans have little control. Bukele seems convinced his new laser-eyed friends are a passport to greater wealth. Right now, it looks like a gamble.”

Lionel Laurent, Bloomberg Opinion

“In embracing Bitcoin, Bukele has launched a strategy to draw fresh international capital to the country. He is also creating some distance from the shadow of the dollar, setting the stage to potentially thumb his nose at the United States…

That Bukele jumped on social media to answer questions about Salvadoran domestic policy as it was happening is very on brand for him. He uses Twitter heavily and shuns traditional media in favor of YouTube influencers. But his recent authoritarian tendencies have raised the alarm of US officials, who may be considering sanctions against officials in the Salvadoran government. (It’s no coincidence that the countries that have bet heavily on cryptocurrency are those facing financial sanctions from the United States — Iran and Venezuela.)…

Bukele’s move may very well mark the beginning of a bidding war between nations to attract that volatile wealth, estimated in the hundreds of billions of dollars. In fact, other Latin American leaders have expressed interest in opening up to Bitcoin. But whether Bitcoin is going to jumpstart the Salvadoran economy or if it’s just a useful tool for Bukele’s agenda of power consolidation remains to be seen.

Marcela García, Boston Globe

Sprinkles from the Right

⏰🚀 Ready, Set, Go: These opinions take 1.44 minutes to read.

“President Bukele’s radical crypto initiative made headlines around the world. It also made him somewhat of a folk hero in the crypto community. But, in El Salvador, Bukele received little more than cynical glances. After all, since El Salvador dumped the colón and replaced it with the U.S. dollar in 2001, its average annual inflation rate has been only 2.03 percent, the lowest rate in Latin America. And if that’s not enough, even though the greenback is legal tender, all currencies are legal to use in El Salvador. So, Salvadorans ask, “Why change our dollarized competitive exchange-rate regime?” It works like a charm. The World Bank and International Monetary Fund have made the same observation and asked the same question. And rightfully so…

While Bukele marches forward, the markets are unsurprisingly in retreat. Following the passage of the Bitcoin Law, Moody’s downgraded El Salvador’s long-term foreign-currency issuer and senior unsecured ratings. As night follows day, El Salvador’s U.S. dollar-denominated bonds due in 2035 have also plunged since the Bitcoin Law was passed and recently hit a nine-month low…

The markets are telling us that Bukele’s authoritarian tendencies and crackpot cryptocurrency ideas will result in currency chaos and economic collapse. For the United States, this would mean yet another wave of migrants from an unstable Central American failed state.”

Steve H. Hanke, professor of applied economics at the Johns Hopkins University in Baltimore and a senior fellow and director of the Troubled Currencies Project at the Cato Institute in Washington, D.C.

“El Salvador’s President Nayib Bukele intimidates entrepreneurs and judges who don’t share his politics. When his country’s Congress wouldn’t rubber-stamp his agenda last year, he brought armed soldiers into the chamber and sat in the speaker’s chair.

Starting Sep. 7 El Salvador will adopt bitcoin as a legal currency. But this is not currency competition. As monetary scholar George Selgin explained in June on the Cato Institute’s Alt-M website, the new law “compels” merchants to accept it as payment.

IMF managing director Kristalina Georgieva has criticized the law, noting that bitcoin is a “volatile asset” that will make planning at all economic levels difficult. In June ratings agency Fitch said the new law increases “risks, including the potential of violating international anti-money laundering and terrorist financing standards”… There’s a reason the Salvadoran economy is sputtering, and it isn’t entirely the fault of Covid-19.

There was a time when large multilateral handouts were conditioned on attempts at good governance. Those days are gone.”

Mary Anastasia O'Grady, Wall Street Journal