In a video played at the Bitcoin Miami conference in Florida on June 5, Bukele announced a major economic policy change: El Salvador would be adopting bitcoin as an official currency, running in parallel with the U.S.
This is likely to be a disaster for the country—but it’s typical of Bukele’s erratic style of government.
Nayib Bukele, the president of El Salvador, is young, dynamic, and impulsive.
It’s also typical of Bitcoin fantasies; a project completely unsuited to daily life in El Salvador, set up largely to boost the image of the cryptocurrency itself.
Bitcoin is the first cryptocurrency, originally created to be a form of money outside government control.
The Bitcoin Law passed 62–19, with three abstentions, just after midnight local time, early June 9.
The executive branch will build the infrastructure for bitcoin payments; in fact, Article 15 of the law says that any provision of a previous law that would regulate bitcoin is repealed—an all-encompassing enabling act, as long as bitcoin is involved.
A quarter of Salvadoran citizens live in the United States, and send money home; remittances were over $5.6 billion in 2019, on the level of El Salvador’s total export income.
If you wanted to withdraw your tethers as dollars, Mallers posited that you could buy bitcoin with the tethers, then cash the bitcoin out at any bitcoin ATM! At the time, there were two bitcoin ATMs in the country, a few kilometers apart in the coastal resort villages of El Sunzal and El Zonte; no more have been installed as yet.
The government plans to distribute a version of the Strike app, for both consumers and merchants; but Strike presently doesn’t work well on older smartphones, or with restricted data caps.
Elsalvador.com sought opinions from local economists, who couldn’t make head or tail of the scheme, or how it could possibly be a good idea.
At the root of this is Bukele’s own financial dilemma.
The US is not happy with Bukele’s authoritarianism and corrupt cronies, and has redirected its foreign aid funding to civil society groups.
Bukele appears to be setting the country up to inject bitcoins into the economy, mark them as “dollars” to make up his deficit, and grab the actual dollars to pay foreign debts.
A $150-million trust will be set up at Bandesal, the national development bank, to compensate merchants for fluctuations in the price of bitcoin between accepting a payment and depositing it in the bank.
It’s simply infeasible to run Know-Your-Customer checks on bitcoin transactions to accepted international FATF standards, and also have bitcoin treated like cash.
El Salvador has a good record on anti-money-laundering , despite the country’s problems with organized crime, but El Salvador’s AML status is directly endangered by the adoption of bitcoin without checks in place.
Politicians such as National Security Adviser Alejandro Muyshondt are promoting the Strike app with a $1 credit for each referral from a Salvadoran—or $5 from each U.S.
Many already see the Bitcoin Law as an attempt to expropriate their dollars—it would be trivial to provide more coercion by raising fees for dollar withdrawals, or restrict the amount that could be withdrawn.
Argentina brought in the “corralito,” effectively freezing all bank accounts and only allowing small withdrawals, to stop a run on the banks.
Bukele wants to succeed as president, and be seen as successful, in pulling El Salvador out of its economic troubles.