Steve Hanke, a very respected applied economics professor from Johns Hopkins University, believes that the bitcoin adoption as El Salvador’s second currency bears some totalitarianism hallmarks. The legislation that passed the law also made the country the first one in the world to recognize any digital currency in such an official manner. It will come to life on 7 September this year and puts an obligation on every economic agent to accept payments by bitcoin. To make sure that Salvadoran people are encouraged to start using crypto, the state offers $30 worth of bitcoin to every adult user who signs up for the app offered by the government.
The country’s president, Nayib Bukele, argues that this law will increase El Salvador’s bitcoin investments, and also will limit the costs of transferring money for expatriates. Around 25% of Salvadorans live abroad, in the United States, and they are of course helping their families out by sending them money. This makes up 21% of the country’s GDP, so the facilitation of all the transferring processes would (in theory) help the country out.
But the World Bank refused to help El Salvador implement new technicalities (upon the president’s request). There are a few reasons for that, and one of them is the ecological concerns over bitcoin mining. Also, J.P. Morgan published a research paper in June, where they openly claimed that they hardly see any economic benefits from such actions of El Salvador’s president.
The changes were not consulted with the citizens, and the obligation to accept the bitcoin payments is seen rather as a forced tender than a legal one. Steve Hanke compares this to the most (in)famous totalitarian regimes. As he recalls, the Soviet Union also was based on forced laws, and Nazi Germany imposed on all the citizens of conquered countries to use their currency.
President Bukele is shifting towards totalitarianism
The US dollar has been officially El Salvador’s currency since 2001. This means, that should they want, bitcoin holders from outside the country (with higher risks of that coming from China, Iran, or Russia) will be able to cash out using El Salvador and drain the country’s reserves of dollars. Professor Hanke believes that the country will be left without money.
The other thing is that the corruption rate is alarming in the country, and it undermines the rule of law and democracy there, as Freedom House states. El Salvador finished a brutal, 12-years-long civil war 29 years ago (in 1992) and could not find a proper balance ever since. President Bukele was chosen for his seat in 2019 in a fair and free election, but the direction he has headed is clear.
In February 2020, a year after he got elected, he deployed security forces and forced them to occupy the legislature. His aim was to get approval for his security funding request. The supreme court protested in October 2020, and ruled the president’s actions unconstitutional.
In May 2021 he decided to get rid of his political opponents, and after he got the support of the legislative assembly, Bukele ousted Raúl Melara, the attorney general, and the judges of the supreme court. USAID (US Agency for International Development) has withdrawn its aid from El Salvador’s public information institute and national police in response to this event. Money from the United States will no longer support the actions of the government and instead is transferred to civil society groups. Bukele did not seem to bother that, as he twitted that he’s ‘cleaning his house’, and that it was none of ‘our’ business.
These major issues are something really alarming for the international observers, as El Salvador’s case becomes more and more worrying. If the officials are able to push their ideas forward one step at a time, and no opposition or sanity could stop them, then what else could other countries do?
If you want to read a great piece about this topic that was written by David Whitehouse, use the following link and access his article written for Disruption Banking: