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As a Salvadoran living abroad but keeping an eye on politics there, I feel the need to comment given the amount of skepticism shown here, which is understandabl

As a Salvadoran living abroad but keeping an eye on politics there, I feel the need to comment given the amount of skepticism shown here, which is understandable given the history. I believe that what the president, Nayib Bukele, and his team have done is monumental. The reason is that I also believe that the financial system crashed back in 2008 and has been kept alive by central banks worldwide. Last summer we saw how Lebanon banks reneged to pay back their customers their holdings in USD. This seems to be increasing. The thirst for USD around the world is increasing and all the so called printing by the FED is not getting to the other countries and international companies fast enough. El Salvador is in a though position since it does not control its main currency. The other one, the Colón, while still legal tender is for all practical purposes unusable. It would take too long to grow the economy enough for it to be valued appropriately against the USD. Mandating BTC as legal tender is an awesome move. To me the most important benefit is that the 70% of the population which was excluded from banking and relegated to use physical currency will now be included. If the economy is an engine and money is the oil, El Salvador, which had only some drops of oil, will now get a complete oil change with synthetic on top of that. Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. Nayib has shown that he’s up to the task. For example, El Salvador is providing every child in the public school system with a laptop and free internet connectivity. So I think this is beyond if BTC goes up to 200k. It doesn’t matter. If it goes back to 10k is OK too. What matters is that every citizen will now be included as equal in this new financial system.

fnord123 5y ago
> Mandating BTC as legal tender is an awesome move. To me the most important benefit is that the 70% of the population which was excluded from banking and relegated to use physical currency will now be included. If the economy is an engine and money is the oil, El Salvador, which had only some drops of oil, will now get a complete oil change with synthetic on top of that. You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand. > This means that the government now has to provide connectivity to all citizens and teach them. And when they don't provide connectivity and teach citizens?
- rawtxapp 5y ago
  > You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand. In my opinion, that's the biggest lie that people have been made to believe to justify constant stealing of their purchasing power over time. People will always spend money for things they need, they will also spend money for things they want, our current system is forcing them to spend it for the sake of spending it causing unnecessary over-consumerism. It doesn't matter how much Bitcoin price will appreciate in 5 years. If I need to eat, I'll have to spend today, if I want to buy a house, I'll have to spend too. Instead, I will think twice on upgrading to the shiny new iPhone every year, maybe doing it once every 2-3 years, which is a good thing.
  - GhostVII 5y ago
    It also encourages them to invest their money. The choice isn't either spend money on over-consumerism or lose it, the choice is either spend it or invest it so someone else can allocate more resources to what they are doing.
    - rawtxapp 5y ago
      For sure, but then you have to understand and research what you're investing in. We also end up with sky high (in my opinion unjustified) P/E ratios just because money doesn't have elsewhere to go and it creates all kinds of wild inaccurate pricing imo. In this world where the currency doesn't depreciate like ~95% over a 100 year period, only investments which make sense will get money thrown at them.
      - NicoJuicy 5y ago
        Depends on the forward P/E, how much market share the company can take and the position they are in. If the P/E is high, it mostly has to do with what i mentioned and your are late to the "party". But high p/e stocks != Fiat money as the op mentioned.
    - 5y ago
sanderjd 5y ago
Without debating any of your points: bitcoin is a terrible choice for this. It is horribly volatile, it is incredibly expensive to transact in, it is an awful waste of energy. Using a stablecoin on a proof of stake blockchain with high transaction rates would make a lot of sense. But that wouldn't help the officials who pushed this get rich from their stash of bitcoin...
- rawtxapp 5y ago
  Once again, El Salvador is using lightning network which enable almost instant and practically free Bitcoin payments. PoS isn't perfect either and has it's own sets of problems.
  - sanderjd 5y ago
    It remains to be seen whether lightning network will actually work for this. If it does, then I'll allow that only the volatility and energy waste are the reasons this is a bad idea. But yeah, if you sell this to me as a test of lightning at scale, then I'm definitely more interested in it, while still thinking a super volatile asset is a bad currency.
    - rawtxapp 5y ago
      It does work, they have been using it in El Zonte town for quite some time now [1]. The volatility will come down as the market caps get larger, but it'll never go away (I mean even fiat currencies and gold's price fluctuate on a daily basis). The energy usage (not waste if you consider it to be a useful thing) will only go up as the price goes up, but it'll use increasingly renewable % and stranded energy and even bankroll new renewable power plants that wouldn't have been profitable to start. 1: https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-el-salvador-village-adopts-bitcoin-as-money/?sh=634a7fd12044 https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-...
      - Shaanie 5y ago
        This "volatility will come down as the market cap gets larger" keeps getting thrown around, yet Bitcoin just lost 50% of its value at a market cap of 1 trillion USD. What market cap is required for Bitcoin to stop being volatile?
Avshalom 5y ago
>> Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. Nayib has shown that he’s up to the task. For example, El Salvador is providing every child in the public school system with a laptop and free internet connectivity. That could have been done with just like a public bank instead of bitcoin though.
- jerry1979 5y ago
  If this experiment works, it should benefit the people in El Salvador because they now have the option to transact and communicate their purchase preferences all around the globe instead of just to the people they meet in person. As for using normal banks, I reckon we had the whole 20th century to try that experiment. Now, banks seem a bit like hope-cope such that it seems like a matter of shitting in one hand and "could have been done with just like a public bank" in the other.
lucasnortj 5y ago
lol "new financial system", bitcoin is literally useless. take of your tinfoil hat
jollybean 5y ago
I think all of this is completely upside down. It's a wildly irresponsible financial move. 1) It only takes a bare minimum of competence to create a currency that has integrity, and is stable. 2) Extending that digitally, should not be a hard. 3) Using energy supplies to calculate made up numbers seems like a giant waste of energy - that energy could be used to heat homes and power other things. 4) BTC is wildly unstable, since El Salvador depends on imports - and - nobody accepts BTC for payment - it's going to be a wild ride. 5) Nobody is going to be issuing debt in BTC so that part is moot. 6) BTC is inappropriate for 'unbanked' people - they're going to be the target of hackers worldwide. Sure, you could make a 'government wallet' that protects them from that ... but then why not just do regular banking. 6) For a currency ... if for some reason you can't do #1 ... the best option, by far, is to use USD. Prices in USD are stable. They're accepted globally. You don't have to issue debt in USD, but you can if you want. You can also digitally bank in USD if you want, it's not that hard. 7) If you really think that the best way to leverage volcanic heat is to mine BTC ... then fine. Do that - and exchange it for whatever currency you need. This whole concept is fairly insane, regular people I feel are going to pay a heavy price. Lastly - the problem is not 'finances' - it's the fools managing the country. If they acted with a modicum of responsibility, you'd be able to have all of the normal things other countries do i.e. a currency, basic banking. None of that is actually that hard. A better solution would be to approach an established bank somewhere: US, Canada, Brazil, UK, Germany and ask them to provide online banking for your citizens, probably in USD or a mix of USD and local currency. Do the BTC mining if you really want to, but as a secondary thing. Final Note: this already has the stench of corruption. My bet is that the leadership already has a big stake in BTC and are 'Doing a Musk' by propping it up and they will be grafting off the top of the mining activity.
- pocoloco 5y ago
  I'm afraid that if I try to retort to each point we may end up talking past each other. But I will say this, I think that your assumption in point 1 is wrong. I think that the mismanagement of the financial system worldwide has proven that there is no country currency invulnerable to manipulation. Jeff Booth talks about this towards the end of this interview which is great in it's entirety IMO. How Inflation Is Stealing Your Wealth | Jeff Booth | Pomp Podcast #572 https://www.youtube.com/watch?v=RuCqFjU9Wi4 https://www.youtube.com/watch?v=RuCqFjU9Wi4
rsj_hn 5y ago
> The thirst for USD around the world is increasing and all the so called printing by the FED is not getting to the other countries and international companies fast enough. This is because all the Fed does is create reserves that it uses to purchase Treasuries on the open market. But when we talk of foreigners demanding USD, what they really demand are treasuries, thus more "printing" (it is electronic, reserves are just numbers in a database) actually reduces the supply of assets that foreigners want to hold. Of course the scale is not really relevant to make a big difference in either direction. What would increase the supply of treasuries is more debt issuance. There is an insatiable thirst to hold risk free debt in stable jurisdictions where property rights are respected. That is why the U.S. can run enormous deficits every year and the yields on those deficits are negative in real terms. None of this has anything to do with the supply of Federal reserve liabilities, which are reserves, but with the supply of Treasury liabilities, both actual liabilities and the off-balance sheet stuff like mortgages which are federally insured and thus also risk-free. We live in a world where the globalization of capital means that the moment anyone has some money to save, they want to store it on account in some US Bank or as a US corporate bond or equity, as they don't trust their own local banks and their own local corporations. Thus the U.S. is the world's bank, and that's why there is a global demand for dollar-denominated assets independent of whatever the Federal reserve does to increase or decrease the supply of reserves within the US banking system. Adjusting those reserves with open market operations does absolutely nothing to supply more dollars to anyone in El Salvador (or in Kansas). But the problem for El Salvador is not the technology of monetary systems, it is that El Salvador has an underground economy that prevents it from collecting taxes or having a working credit system. If all your dealings are under the table, you have nothing to show a loan officer. If you don't want to store your savings in a bank but want to instantly withdraw them and store them in a foreign bank or under your mattress, then you are not going to be able to get much in bank loans in your own currency. None of that will be solved or even improved with bitcoin. Proving once again that bitcoin is a solution in search of problem, even in the arena of El Salvador's monetary woes.
- pocoloco 5y ago
  > But the problem for El Salvador is not the technology of monetary systems I do believe that the monetary system IS the problem since El Salvador is dollarized and is subject to a foreign central bank antics while having no say in the matter. Having their own would be marginally better perhaps but IMO bitcoin is a much better solution.
yongjik 5y ago
Not gonna argue about bitcoin's merit, but this part: > Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. It's like proposing to dismantle old but working streetcars, because when the only way people can get around is by cars then the government will have to build decent highways. Sure, maybe the government should, but if it couldn't until now then what makes you think it will suddenly be able to?

fnord123 5y ago

> Mandating BTC as legal tender is an awesome move. To me the most important benefit is that the 70% of the population which was excluded from banking and relegated to use physical currency will now be included. If the economy is an engine and money is the oil, El Salvador, which had only some drops of oil, will now get a complete oil change with synthetic on top of that. You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand. > This means that the government now has to provide connectivity to all citizens and teach them. And when they don't provide connectivity and teach citizens?

rawtxapp 5y ago
> You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand. In my opinion, that's the biggest lie that people have been made to believe to justify constant stealing of their purchasing power over time. People will always spend money for things they need, they will also spend money for things they want, our current system is forcing them to spend it for the sake of spending it causing unnecessary over-consumerism. It doesn't matter how much Bitcoin price will appreciate in 5 years. If I need to eat, I'll have to spend today, if I want to buy a house, I'll have to spend too. Instead, I will think twice on upgrading to the shiny new iPhone every year, maybe doing it once every 2-3 years, which is a good thing.
- GhostVII 5y ago
  It also encourages them to invest their money. The choice isn't either spend money on over-consumerism or lose it, the choice is either spend it or invest it so someone else can allocate more resources to what they are doing.
  - rawtxapp 5y ago
    For sure, but then you have to understand and research what you're investing in. We also end up with sky high (in my opinion unjustified) P/E ratios just because money doesn't have elsewhere to go and it creates all kinds of wild inaccurate pricing imo. In this world where the currency doesn't depreciate like ~95% over a 100 year period, only investments which make sense will get money thrown at them.
    - NicoJuicy 5y ago
      Depends on the forward P/E, how much market share the company can take and the position they are in. If the P/E is high, it mostly has to do with what i mentioned and your are late to the "party". But high p/e stocks != Fiat money as the op mentioned.
  - 5y ago

sanderjd 5y ago

Without debating any of your points: bitcoin is a terrible choice for this. It is horribly volatile, it is incredibly expensive to transact in, it is an awful waste of energy. Using a stablecoin on a proof of stake blockchain with high transaction rates would make a lot of sense. But that wouldn't help the officials who pushed this get rich from their stash of bitcoin...

rawtxapp 5y ago
Once again, El Salvador is using lightning network which enable almost instant and practically free Bitcoin payments. PoS isn't perfect either and has it's own sets of problems.
- sanderjd 5y ago
  It remains to be seen whether lightning network will actually work for this. If it does, then I'll allow that only the volatility and energy waste are the reasons this is a bad idea. But yeah, if you sell this to me as a test of lightning at scale, then I'm definitely more interested in it, while still thinking a super volatile asset is a bad currency.
  - rawtxapp 5y ago
    It does work, they have been using it in El Zonte town for quite some time now [1]. The volatility will come down as the market caps get larger, but it'll never go away (I mean even fiat currencies and gold's price fluctuate on a daily basis). The energy usage (not waste if you consider it to be a useful thing) will only go up as the price goes up, but it'll use increasingly renewable % and stranded energy and even bankroll new renewable power plants that wouldn't have been profitable to start. 1: https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-el-salvador-village-adopts-bitcoin-as-money/?sh=634a7fd12044 https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-...
    - Shaanie 5y ago
      This "volatility will come down as the market cap gets larger" keeps getting thrown around, yet Bitcoin just lost 50% of its value at a market cap of 1 trillion USD. What market cap is required for Bitcoin to stop being volatile?

Avshalom 5y ago

>> Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. Nayib has shown that he’s up to the task. For example, El Salvador is providing every child in the public school system with a laptop and free internet connectivity. That could have been done with just like a public bank instead of bitcoin though.

jerry1979 5y ago
If this experiment works, it should benefit the people in El Salvador because they now have the option to transact and communicate their purchase preferences all around the globe instead of just to the people they meet in person. As for using normal banks, I reckon we had the whole 20th century to try that experiment. Now, banks seem a bit like hope-cope such that it seems like a matter of shitting in one hand and "could have been done with just like a public bank" in the other.

lucasnortj 5y ago

lol "new financial system", bitcoin is literally useless. take of your tinfoil hat

jollybean 5y ago

I think all of this is completely upside down. It's a wildly irresponsible financial move. 1) It only takes a bare minimum of competence to create a currency that has integrity, and is stable. 2) Extending that digitally, should not be a hard. 3) Using energy supplies to calculate made up numbers seems like a giant waste of energy - that energy could be used to heat homes and power other things. 4) BTC is wildly unstable, since El Salvador depends on imports - and - nobody accepts BTC for payment - it's going to be a wild ride. 5) Nobody is going to be issuing debt in BTC so that part is moot. 6) BTC is inappropriate for 'unbanked' people - they're going to be the target of hackers worldwide. Sure, you could make a 'government wallet' that protects them from that ... but then why not just do regular banking. 6) For a currency ... if for some reason you can't do #1 ... the best option, by far, is to use USD. Prices in USD are stable. They're accepted globally. You don't have to issue debt in USD, but you can if you want. You can also digitally bank in USD if you want, it's not that hard. 7) If you really think that the best way to leverage volcanic heat is to mine BTC ... then fine. Do that - and exchange it for whatever currency you need. This whole concept is fairly insane, regular people I feel are going to pay a heavy price. Lastly - the problem is not 'finances' - it's the fools managing the country. If they acted with a modicum of responsibility, you'd be able to have all of the normal things other countries do i.e. a currency, basic banking. None of that is actually that hard. A better solution would be to approach an established bank somewhere: US, Canada, Brazil, UK, Germany and ask them to provide online banking for your citizens, probably in USD or a mix of USD and local currency. Do the BTC mining if you really want to, but as a secondary thing. Final Note: this already has the stench of corruption. My bet is that the leadership already has a big stake in BTC and are 'Doing a Musk' by propping it up and they will be grafting off the top of the mining activity.

pocoloco 5y ago
I'm afraid that if I try to retort to each point we may end up talking past each other. But I will say this, I think that your assumption in point 1 is wrong. I think that the mismanagement of the financial system worldwide has proven that there is no country currency invulnerable to manipulation. Jeff Booth talks about this towards the end of this interview which is great in it's entirety IMO. How Inflation Is Stealing Your Wealth | Jeff Booth | Pomp Podcast #572 https://www.youtube.com/watch?v=RuCqFjU9Wi4 https://www.youtube.com/watch?v=RuCqFjU9Wi4

rsj_hn 5y ago

> The thirst for USD around the world is increasing and all the so called printing by the FED is not getting to the other countries and international companies fast enough. This is because all the Fed does is create reserves that it uses to purchase Treasuries on the open market. But when we talk of foreigners demanding USD, what they really demand are treasuries, thus more "printing" (it is electronic, reserves are just numbers in a database) actually reduces the supply of assets that foreigners want to hold. Of course the scale is not really relevant to make a big difference in either direction. What would increase the supply of treasuries is more debt issuance. There is an insatiable thirst to hold risk free debt in stable jurisdictions where property rights are respected. That is why the U.S. can run enormous deficits every year and the yields on those deficits are negative in real terms. None of this has anything to do with the supply of Federal reserve liabilities, which are reserves, but with the supply of Treasury liabilities, both actual liabilities and the off-balance sheet stuff like mortgages which are federally insured and thus also risk-free. We live in a world where the globalization of capital means that the moment anyone has some money to save, they want to store it on account in some US Bank or as a US corporate bond or equity, as they don't trust their own local banks and their own local corporations. Thus the U.S. is the world's bank, and that's why there is a global demand for dollar-denominated assets independent of whatever the Federal reserve does to increase or decrease the supply of reserves within the US banking system. Adjusting those reserves with open market operations does absolutely nothing to supply more dollars to anyone in El Salvador (or in Kansas). But the problem for El Salvador is not the technology of monetary systems, it is that El Salvador has an underground economy that prevents it from collecting taxes or having a working credit system. If all your dealings are under the table, you have nothing to show a loan officer. If you don't want to store your savings in a bank but want to instantly withdraw them and store them in a foreign bank or under your mattress, then you are not going to be able to get much in bank loans in your own currency. None of that will be solved or even improved with bitcoin. Proving once again that bitcoin is a solution in search of problem, even in the arena of El Salvador's monetary woes.

pocoloco 5y ago
> But the problem for El Salvador is not the technology of monetary systems I do believe that the monetary system IS the problem since El Salvador is dollarized and is subject to a foreign central bank antics while having no say in the matter. Having their own would be marginally better perhaps but IMO bitcoin is a much better solution.

yongjik 5y ago

Not gonna argue about bitcoin's merit, but this part: > Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. It's like proposing to dismantle old but working streetcars, because when the only way people can get around is by cars then the government will have to build decent highways. Sure, maybe the government should, but if it couldn't until now then what makes you think it will suddenly be able to?