Few topics have been at the center of debates on the Internet as the cryptocurrencies. The two sides exchange opinions and arguments. As many other discussions on the Internet, this debate may seem as uninteresting to a government, but it is simply not the case, since several Nations have shown interest in the growing market of digital currencies, because of their economic, social and geopolitical possible consequences.
While several countries seem interested in cryptocurrencies developments, others try to control them, in order to exploit their potential, while minimizing the risks.
For the first article on the topic, we are going to focus on El Salvador and its President, the perfect example of entusiasm towards cryptocurrencies and the dismissal of criticism.
El Salvador, repression and innovation
The Salvadorian president Nayib Bukele could be described as “peculiar”. He seems like a central-american version of Saudi prince Mohamen bin Salman, taking actions always on the line between dictatorship and progress: these last few years, El Salvador has experienced several antiliberal actions, such as the use of the army in the Parliament to push the approval of a law, as well as the destitution of opposed judges of the Supreme Court. Bukele is also an ardent supporter of cryptocurrencies, so much that he was able, in June 2021, to push for a law making the bitcoin a legal currency in the country. This meant recognizing the cryptocurrency as an official payment, impossible to refuse. El Salvador had used, up until that point, only the US dollar as currency.
The law was presented as a measure to encourage economic growth and employment, since the developing country has a low financial penetration rate, in comparison to “First World” countries. Bukele has claimed that 70% of the population has no access to traditional banking services. El Salvador, moreover, depends heavily on remittances: according to World Bank data, 20% of salvadorian GDP is based on remittances, with around 6 bilion dollars being transferred. The central american country seems to be among the countries with the highest dependence on this phenomenon.
The president has claimed that the new currency would make it easier for salvadorians in foreign countries to send money home, making such an important process quicker.
Criticism and protests
While Bukele has even promised 30 dollars in bitcoins to every citizen, in order to encourage the use of digital wallets, the new law has caused huge protests. These protests originated from the worries linked to digital currencies’ unpredictability, which could cause instability in the already poor country. According to many demonstrators, this measure could make capital inflows even more unstable and unpredictable: this could cause inflation, causing damage to salvadorians and a higher likelihood of money laudering, tax fraud and other crimes.
Bukele has responded claiming that “the problem lies in criminals, not in the currency”, highlighting the fact that organized crime acts even with and without digital currencies.
Criticism does not stop there: a research by the Central American University has demonstrated that only 4,8% out of thousand interviewees knew about bitcoins, while more than 68% was against the use of cryptocurrency, not knowing its mechanisms and being insecure about it. Although the law considers large-scaled training on technical aspects, in order to guarantee an adequate use of the cryptocurrency, many doubt on the actual effects of the training for citizens.
Considering all these problems, and the fact that the World Bank has warned the Salvadorian government about the possible consequences of the cryptocurrency adoption, analysts have described the measure as a “call for attention” from an “authoritarian regime”, seeing in Bukele’s actions a publicity stunt, rather than a monetary policy to create better conditions for the country. Neil Wilson, a market analyst for Markets.com, claims that economy in general will suffer from this choice, since “Bitcoin is intrinsically wrong as a payment method on a large scale, since it is quite costly for small transactions”, like the ones the majority of salvadorians would make on a daily basis.
The “Bitcoin city”
Some have protested in respect to the environmental harm that may follow the mass adoption of bitcoins, since the process for the extraction of cryptocurrencies is energy-consuming (we dealt with this problem in this article: Cryptoart: when a meme is worth $600,000).
Although Bukele has tried to reassure everyone, some do not believe there will be adequate and efficient measures to counter that problem, especially because El Salvador has no control over the sustainability of cryptocurrencies produced elsewhere, which would be a substantial part of the currency in circulation in the central american economy.
The president did not stop in front of these protests and, in an attempt to call for the attention once again, announced he would have built a city based on the form of a Bitcoin on the slopes of a volcano. The idea sounds ridiculous, but it would make it possible to exploit the geothermal energy from Conchagua volcano to extract bitcoins through a “clean” source.
The city project would be funded with cryptocurrencies, for a total cost of about 300.000 Bitcoin, about 13,5 bilion dollars (an amount that may vary a lot before the beginning of the project, because of the abovementioned instability of the cryptocurrencies). Nonetheless, even though the intentions seem good, it is clear that such a proposal appears to be more of a marketing move rather than a careful choice. Many fear that it would end up in a disaster for El Salvador.
This was a first approach to the issue of digital currencies, the one of those who believe in cryptocurrencies’ revolutionary nature and want to use its publicity and economical success, without taking into consideration protests and recommendations. Other countries have different ideas on cryptocurrencies and question themselves on the possibility to deny their use or to create a new cryptocurrency they can control.
What approach is going to be successful?
Translated by Greta Thierry