El Salvador expected to default as Bitcoin plummets

https://english.elpais.com/economy-and-business/2022-05-10/el-salvador-expected-to-default-as-bitcoin-plummets.html

by thematrixturtle • 4 years ago

303 226 4 years ago

english.elpais.com

nikanj• 4 years ago

They'll just buy the dip. Line goes up, I hear.

z9znz• 4 years ago

I fear your amusing sarcasm may be lost on some readers.

mmoya• 4 years ago

Me one of them.

skocznymroczny• 4 years ago

To be honest, every time I heard about Bitcoin plummeting, buying the dip would still net you 3x, 4x gains in a year. We'll see how it goes here, but I wouldn't be surprised if after a series of "Is Bitcoin dying?" articles we'll see it bounce back again.

fbn79• 4 years ago

...the government had purchased nearly $25 million worth of bitcoin... ...a $800 million Eurobond repayment due in January 2023...

Dont think the losing of bitcoin value can be blamed in case of default

arcticbull3• 4 years ago

After and due to their failed attempt to raise a "Bitcoin bond," the market doesn't believe in the government. Their non-Bitcoin based sovereign debt is now trading at 30 cents on the dollar, down from 94 cents on the dollar last March. [1] This makes it all but impossible for them to raise more sovereign debt on the capital markets.

I don't think it's the price of Bitcoin so much as their going all-in on it and then seeing their gamble collapse out from under them. They've now lost money on all the "dip buys" their dictator was tweeting about - in English only - to show off to the laser-eyed.

Their issue is that they showed such poor judgement.

[edit] Further, of course, they're thumbing their nose at the IMF by refusing to roll back BTC-as-tender. No matter what you think of that demand or that policy decision, if the IMF is the only one lined up to bail you out, it's their way or the high way.

[1] https://www.boerse-frankfurt.de/bond/usp01012ca29-el-salvado...

riffraff3• 4 years ago

the bitcoin bond was worse than the existing el salvador bonds in all ways. I.e. you could have bought a normal bond and bitcoin spending the same amount of money and having strictly better returns in all circumstances. And reportedly, nobody bought them[0].

I am not sure that emission scared investors, if anything, had someone showed up to buy them, it would have been free money fo the government.

[0] https://www.msn.com/en-us/money/markets/el-salvadors-bitcoin...

api• 4 years ago

their dictator was tweeting about

Sounds like a line from Snow Crash but its... real...

loceng• 4 years ago

Their issue is that they showed such poor judgement.

The "they" in your statement is solely the dictator, no?

nopq• 4 years ago

their dictator

El Salvador is a parlamentary Republic with independent political parties and an elected president.

https://en.m.wikipedia.org/wiki/Politics_of_El_Salvador

octoberfranklin• 4 years ago

Another case of slimy headlining: writing "as" and hoping people hear "because".

This problem is widespread these days.

IfOnlyYouKnew2• 4 years ago

The problem that you are reading things that aren’t there?

el-salvador18• 4 years ago

IMHO thee headline in the Spanish original article was badly worded too

"El mercado augura que El Salvador entrará en impago por haber convertido el bitcoin en moneda legal" https://elpais.com/america/economia/2022-05-09/el-mercado-au...

ak_1114• 4 years ago

If you loan someone $100 and then find him going to vegas each weekend gambling $5 and spending the entire week boasting about what a genius he is and showing off his photos with his gambling friends, you will feel very uncomfortable loaning him more, even though his gambling habits are incrementally consuming a small portion of the loan you gave him.

diffeomorphism2• 4 years ago

you will feel very uncomfortable loaning him more, even though his gambling habits are incrementally consuming a small portion of the loan you gave him.

So you are irrational and want to punish your client because of what hobby they pursue in their private/free time.

If their hobby is expensive enough to have an impact, then it does concern you, but if it is just "$5$" then it is none of your business if they spend it on ice cream, a gym or gambling.

espadrine• 4 years ago

> ...the government had purchased nearly $25 million worth of bitcoin...
Dont think the losing of bitcoin value can be blamed in case of default

Volatility makes it difficult to represent the true economic impact of this situation. From scarce and needlessly secret information, their bitcoin holdings were worth over $100M earlier this year[0], a consequential portion of the repayment. More importantly, while they have historically claimed that they would always “buy the dip”, there is no indication of when they sold, and a few indications that they have turned a loss on the investment so far.

Meanwhile, the payments are due at fixed periods, which may force them to sell unfavourably. A year after the 2018 high, it was at a fourth of its high value. What they now consider “dips” may well be seen as highs then.

Plus, their policies have an effect on the rest. In short, they don’t have a strong case on finding financing apart from their crypto bet[1]:

The downgrade of El Salvador's rating is driven in good part by the lack of a credible financing plan

which they would need, to cover their worsening position[2]:

The government faces only USD305 million in external debt amortizations in 2022, but faces close to USD1.2 billion in 2023
El Salvador will likely face a funding gap of about 1% of GDP

[0] https://www.bloomberg.com/news/articles/2022-01-12/bitcoin-t...

[1] https://www.moodys.com/research/--PR_464838

[2] https://www.fitchratings.com/research/sovereigns/fitch-downg...

JohnJamesRambo• 4 years ago

Bukele showed up in the latter stages of a bull market and thought he was a genius that had discovered a money making machine. Just like Saylor and Elon. It happens every cycle. They will all be tested. No one gets through the door easily. The genius was ignoring recency bias and buying BTC at the bottom at 3k in 2018 and selling your coins to Elon last year.

The amount Bukele bought is tiny. Bitcoin and crypto are a threat to the IMF system. They aren’t going to like it when you do that. To survive without the IMF, you would have to go all in at a generational bottom. That did not happen.

el-salvador18• 4 years ago

Bitcoin and crypto are a threat to the IMF system. They aren’t going to like it when you do that. To survive without the IMF, you would have to go all in at a generational bottom. That did not happen.

In the large scale, El Salvador's BTC fund is not that big.

I mean, El Salvador has more IMF shares than Bitcoins in their fund.

- El Salvador Bitcoin: 74 million USD [2]

- El Salvador IMF shares: 402 million USD (207 million SDRs) [1]

[1] https://www.imf.org/en/About/executive-board/members-quotas

[2] https://nayibtracker.com/

matheusmoreira• 4 years ago

Bitcoin and crypto are a threat to the IMF system.

Can you elaborate on this?

arinlen2• 4 years ago

Bitcoin and crypto are a threat to the IMF system. They aren’t going to like it when you do that. To survive without the IMF, you would have to go all in at a generational bottom. That did not happen.

I see this conspiracy theory thrown somewhat often, but it has the same substance than any qanon-type "they" story.

Meanwhile, supporters of this conspiracy theory fail to explain why adopting a highly volatile and manipulation-prone asset as a nation's legal tender is not a completely brain-dead belief, as it fails any of the basic properties of money.

Another detail that btc conspiracy theorists fail to mention is how every single concern expressed by the IMF regarding El Salvador's Bitcoin push was already proven right.

But crypto-bros hand-wave around the subject and it never ceases to be fool-proof.

throw8383833jj3• 4 years ago

i know this will get downvoted heavily, but considering how rapidly fiat currencies are loosing value, I'd say the investment in bitcoin is an excellent long term bet and even by jan 2023, likely to look good. history will judge.

taylodl3• 4 years ago

How do you figure? The price of gold today in USD is up 4.4% of where it was from the highs 10 years ago. That's not indicative of a fiat currency rapidly losing value.

If you consider the price of gold today vs. where it was at its lowest point over the previous 10 years (USD had most value, just before Trump took office) then gold has gone up 42.76% (meaning the USD has lost considerable value since 2016). You can look at the charts and see when the trade war started with China and see when the Pandemic hit. Even so, since Biden has been in office the USD has been gaining in value (as measured by gold) and given the action of the Fed last week it will gain even more value (in fact that's been the financial news the past few weeks - the USD gaining value). Again this doesn't support the claim that fiat currencies are rapidly losing value.

I'm getting my information on the price of gold here - https://goldprice.org/gold-price-history.html

neither_color• 4 years ago

For perspective, the previous president of El Salvador is in exile for his alleged role in the embezzlement of $300+ million.

https://apnews.com/article/caribbean-el-salvador-a08341e3810...

A 2% speculative investment in an emerging technology is a drop in the bucket compared to what El Salvador has been through in the past 30 years, with multiple past presidents arrested or fleeing the country following corruption charges. By multiple verifiable metrics(homicide rate, covid response, gdp growth) El Salvador is in a far better place now than it's been in decades.

arinlen2• 4 years ago

A 2% speculative investment in an emerging technology is a drop in the bucket compared to what El Salvador has been through in the past 30 years, with multiple past presidents arrested or fleeing the country following corruption charges.

That's an extremely generous and charitable interpretation.

El Salvador's investment in btc is hardly relevant with regards to it's nominal cost. It is however significant in the impact it has on El Salvador being able to refinance it's sovereign debt and earn trust in the country's institutions.

Trying to argue that today's sad state of affairs is not that bad because some point in the past the state of affairs was also sad is not a path forward.

el-salvador18• 4 years ago

For perspective, the previous president of El Salvador is in exile for his alleged role in the embezzlement of $300+ million.

All of those cases were discovered and judged thanks to:

a) The separation of the Executive/Legislative/Judicial powers

b) The Public Access Information Law.

c) The help of independent journalism

I don't agree with removing the checks and balances that helped discovered these cases in the first place.

The first two a) and b) have been dismantled by the current administration in the past year.

The third, c), independent journalism, is constantly under attack from government and allied media outlets and influencers.

Just a couple of weeks ago, the Head of Congress told the independent press "to go away". This happened live, on the podium, while presiding a session.

Quoting what the Head of Congress said:

"Ask for asylum. Get asylum and go way Go away. You don't contribute anything here.... We don't need you. Go away. "

Video:

https://twitter.com/CronistaOscar/status/1516602424672280579

This was around about the same time when congress approved a law that punishes (with prison) certain kinds of reporting about gangs.

el-salvador18• 4 years ago

El Salvador is in a far better place now than it's been in decades.

Literally, like just two hours ago, we lost Visa Free Travel to the UK, due to a 17x fold increase in asylum requests in 2021 [1]

Is this a sign of the country being in a better place?

[1] https://twitter.com/UKinElSalvador/status/152440993677563494...

hathym• 4 years ago

apparently they were counting on bitcoin going to the moon to repay their $800 millions debt with the $25 million investment.

rib3ye• 4 years ago

So where are the BTC addresses? Something I always find annoying about articles reporting huge coffers: site the source, link the wallets!

davidgerard• 4 years ago

Nobody knows, and that's a big issue. There's a lot of secrecy around the whole project that there shouldn't be.

Apparently the BTC is in custody at BitGo? But that's the word of one blogger.

blitzar• 4 years ago

So there is a decent chance that they havent even been buying the dip!

el-salvador18• 4 years ago

Another question:

Which government's institution's balance sheet shows the Bitcoin assets?

Who sits in the board of directors? What is their experience?

Who audited their financial statements?

Where can that public information be found?

firstSpeaker• 4 years ago

Probably a group of government officials earned significantly from these and if the country goes default most of the pain will be on the ordinary citizens, sadly.

xiphias23• 4 years ago

,, The firm added that debt to gross domestic product (GDP) is expected to rise to 86.9% in 2022, “increasing concerns around debt sustainability over the medium term.”

As a comparision US debt to GDP ratio is 133%

Also forex reserves is 3.4B, I don’t see why it would be impossible to pay $800M

ceejayoz• 4 years ago

$800M is just the payment due in six months. There’s lots more behind it. Hence, they said medium term, not short.

There are significant differences between the US and El Salvador that raw debt to GDP does not capture.

toyg• 4 years ago

Probably because it would be just a sticky plaster. You want to hold on that liquidity for survival, particularly in a situation where you can't borrow anymore - so at least you can keep the lights on by paying cash for the essential transactions (petrol, food, etc).

As a comparision US debt to GDP ratio is 133%

The bigger and wealthier the country is, the more markets are willing to cut them some slack. Japan is at 263%, France 112%, etc etc. It's something of a fraud but that's how it is. Capital markets are often very bigoted, to be charitable.

croes• 4 years ago

It also depends on who you are in debt to. For example, Japan is mainly indebted to its citizens.

CPLX• 4 years ago

It’s not a fraud it’s a reaction to the total level of assets the sovereign holds and their ability to get more. Needless to say the countries you mention considerably outpace El Salvador in this department.

simonh2• 4 years ago

It’s about risk. US debt is sustainable because bond holders trust them to effectively manage their economy so that they can pay them back. Are you seriously suggesting that not trusting the Salvadorian government to the same extent is fraudulent, or bigoted? Would you trust them? If so and you’re right, then you should make a killing investing in their bonds given the return rates.

drexlspivey• 4 years ago

It’s not just that, if you issue debt in a currency you control you can theoretically never default, you can just keep devaluing your currency to pay off previous debts. El Salvador has two currencies right now and they control neither of them.

RobertoG• 4 years ago

People always talk about debts GDP ratio and forget to tell in what currency the debt is.

It's, obviously, not the same, a debt in your own currency that in a currency that you don't control.

A country that is taking debt in a currency that they don't control is, almost always, searching for trouble.

CyanBird• 4 years ago

El Salvador doesn't have a currency, they operate in US dollars, a consequence of US's Neocolonial situation on the region, they are de facto a sorts of "economic colony"

notahacker• 4 years ago

A quarter of your forex reserves in the short term means a potential issue in the medium term. The US obviously has a lot more ability to pay US dollar denominated debts...

stephen_g• 4 years ago

The US only issues bonds in its own currency, which makes a massive difference.

Foreign-denominated debt is a huge trap for developing countries. Some more conspiratorial folk would say that’s intentional (to take their natural resources by making them indebted, buying their resource exports and then they have to pay much of that revenue back to you as interest).

usrusr2• 4 years ago

But is it plummeting? I'd be the first to cheer, but I only see some of the usual fluctuation that's the closest thing BTC has to stability. Is that's enough to send them into default, the entire thing has been nothing but a last ditch hail mary pass of the kind that, below state level, is usually countered by bankruptcy laws that are written precisely to keep stuff like that from happening.

viraptor2• 4 years ago

It's plummeting every time :) As much as I don't like the "don't look at this (this week's chart), look at this (last 2 years chart)" meme, it really applies each time there's a crypto crash reported by every news site. Still, we recovered every time. Let's see how the price is going in 3 months.

Aachen• 4 years ago

we recovered every time

You say that as if it's a net positive and the people involved did more than literally nothing

rchaud3• 4 years ago

You 'recover' only if you have the luxury of not needing to sell during the downturn. By that metric, no major stock index has ever gone down except for Japan's Nikkei, which never again reached its 1990 peaks.

El Salvador has an $800m bond repayment due in Jan 2023. You can't make repayments in crypto, so some of their securities holdings will need to be sold in order to make payments. You might not feel the market downturn, but they certainly will.

gregwebs• 4 years ago

Almost 1/4 of El Salvador GDP is remittances. The point of Bitcoin for them is that there is now a Bitcoin-based money transfer system they can use with no fees. The reduction in fees to the countries citizens should dwarf the country's losses from holding bitcoin. All of which is a minor amount compared to their actual bond repayment amount (which has nothing to do with Bitcoin). A better title might be: the IMF demands El Salvador gets rid of Bitcoin before refinancing its loans.

Edit: Adding this addendum to reply to commenters themes.

These Bitcoin-based transfers are not on the Bitcoin blockchain but instead actually happening on the Lightning network- the transfer fee is close to zero.

In addition to the fees of traditional remittances, there are sometimes additional significant inconveniences- for example some have to travel by bus to the city where the Western Union is located.

The current extended Bitcoin drawdown probably doesn't effect things much. Users generally convert their BTC to dollars in the Chivo wallet app the country uses to avoid the volatility.

Despite all the theoretical advantage for remittances, adoption for remittances is still very low, with 11% ever using the app for this. It may be in part because using the government app means the remittances are known to the government and can be taxed as income, whereas cash goes unreported. https://www.howtogeek.com/801982/bitcoin-is-legal-tender-in-...

onlyrealcuzzo2• 4 years ago

BTC lost >50% of it's value from it's peak not too long ago.

In what world are transaction fees >50%?

bluescrn• 4 years ago

It's fluctuated ridiculously over the last 18 months.

But if you bought before about Nov 2020, you've still at least doubled your money.

endisneigh• 4 years ago

The reduction in fees should dwarf The losses from holding bitcoin.

The propaganda is strong. How much do you think it costs to send money from say USA to El Salvador?

once_inc2• 4 years ago

From anecdotes I've seen on multiple places on the internet: between 5-10%

el-salvador18• 4 years ago

How much do you think it costs to send money from say USA to El Salvador?

It depends on the case

The cheapest way is depositing a check.

Depositing a U.S. check in a Salvadoran bank is free in some banks. The disadvantage is that it is slow

JumpCrisscross3• 4 years ago

point of bitcoin for them is that there is now a bitcoin based money transfer system they can use with no fees

There is zero coïncidence in El Salvador and the Central African Republic, nos. 115 and 154 on the corruption perceptions index [1], having implemented Bitcoin as legal tender with zero transparency around the holding wallets.

Best case: it isn’t outright embezzlement but facilitating graft.

[1] https://en.m.wikipedia.org/wiki/Corruption_Perceptions_Index

el-salvador18• 4 years ago

Despite all the theoretical advantage for remittances, adoption for remittances is still very low, with 11% ever using the app for this.

An issue that Salvadorans in the U.S. face when they want to fund their Chivo Wallets to send to their family is that they charged a Foreign Transaction Fee by their U.S. banks. This happens because the Chivo card transaction is processed in El Salvador and most Salvadorans in the U.S. don't have debit/credit cards that refund Foreign Transaction fees. Depending on the bank they may be about 3% and they add up for larger transactions.

Btw Salvadoran banks don't charge foreign transaction for purchases abroad. So these fees are something we rarely think about, and came as a surprise to many :D

Or they would have to take a bus or drive to a Salvadoran consulate in the U.S. to use a US Chivo ATM. The time that would take plus transportation costs wouldnt make it a cheap option either.

It may be in part because using the government app means the remittances are known to the government

This seems incorrect. El Salvador has very strict transaction reporting laws.

1. Every remittance is reported in El Salvador. Every one of them. In a very detailed way. To at least three government institutions. Central Bank, Financial Investigation Unit and Tax Office.

and can be taxed as income,

2. Transfers between family members are not considered taxable income according to the Tax Code. It's on the first pages of the Income Tax Law: Article 3, Paragraph 3.

whereas cash goes unreported.

El Salvador tracks cash transactions.

Even paying the $2.29 water bill in coins requires an ID.

Other commerces have a higher reporting thresholds, like +$100/$200 in supermarkets and clothing stores.

Many cashiers are trained to ask for an ID even for lower purchases to activate product warranty and loyalty programs.

ak_1114• 4 years ago

This guy seriously wanted to sell El Salvador's remaining gold reserve to buy bitcoin with it only a few months ago. Not sure how his population put up with him.

https://news.bitcoin.com/el-salvadors-president-tells-peter-...

qgin2• 4 years ago

He’s extremely popular

ak_1114• 4 years ago

Seriously, is this the case? Source?

akhmatova• 4 years ago

The rulers in that country have a long history of making the population put up with whatever the hell they want to do.

throw0101a• 4 years ago

"Bitcoin Is Legal Tender in El Salvador, Here’s How It’s Going":

* https://www.howtogeek.com/801982/bitcoin-is-legal-tender-in-...

* https://news.ycombinator.com/item?id=31294460

Which talks about this paper:

This paper studies the potential of a cryptocurrency to become a medium of exchange. We use evidence from a natural experiment: In September 2021, El Salvador became the first country in the world to make bitcoin legal tender, and all economic agents were required to accept bitcoin for all payments. The Salvadorean government also launched an app, “Chivo Wallet,” which allowed users to digitally trade both bitcoin and dollars, and gave major incentives to download it. We conduct a representative national face-to-face survey to obtain information on bitcoin’s usage and effects. Leveraging this data, we document how, despite the government’s “big push” and a large fraction of people downloading Chivo Wallet, usage of bitcoin for everyday transactions is low and is concentrated among the banked, educated, young, and male population. We also estimate the fixed cost of adopting the new payment technology, the importance of strategic complementarities for users, and the elasticity of substitution between mobile payments and other payment methods.

* https://www.nber.org/papers/w29968

paradite• 4 years ago

the price of the most popular cryptocurrency in the world has plummeted more than 50%

How does the "price of bitcoin" fall? Is it referring to the exchange rate between USD and bitcoin?

Why does that matter when bitcoin is a legal domestic currency?

Hamuko• 4 years ago

Foreign trade?

simonh2• 4 years ago

For the same reasons that any collapsing domestic currency matters.

tejohnso• 4 years ago

most popular cryptocurrency in the world has plummeted more than 50% from its all-time highs

Which it has done numerous times in its short life. Not a big surprise, and not the real source of the country's problems.

What would default mean in this case anyway? The IMF comes in and claims ownership of state resources?

MomoXenosaga• 4 years ago

The IMF will bail them out because Biden doesn't want an immigration crisis on the border. Elections are coming up.

The entire government will have to resign and it will be the end of the great cryptocurrency adoption LMAO.

spupe• 4 years ago

> most popular cryptocurrency in the world has plummeted more than 50% from its all-time highs Which it has done numerous times in its short life.

Perhaps making a highly unstable, speculative cryptocurrency legal tender is a bad move then.

thr0wawayf00• 4 years ago

The problem is that cryptocurrency behaves nothing like a fiat currency. There's a reason putting your entire savings in straight cash is not a good idea: Fiat currency doesn't fluctuate the same way because it's not meant to be an investment vehicle. The main goal of currency is to facilitate value exchange. Crypto is the opposite, by prioritizing value gains over value exchange functionality.

Using crypto to buy goods works OK when the price is relatively stable, but as soon as it makes big movement, lots of vendors stop accepting it. Crypto acts more like (and increasingly moves like) stocks, where investors buy in hoping to profit by converting crypto back into cash the same way stocks are sold.

kirsebaer• 4 years ago

An El Salvador court just sentenced a woman to 30 years in prison for having a miscarriage. She has been jailed for two years awaiting trial and has a 7 year old daughter. https://m.dw.com/en/el-salvador-jails-woman-accused-of-abort...

jl6• 4 years ago

The sentence, which was delivered Monday, could not be immediately confirmed, since courts were closed on Tuesday for Mother's Day.

Dark.

4ad2• 4 years ago

I think this happened 10 years ago and she was just recently released after serving 10 years of her sentence: https://www.dw.com/en/el-salvador-releases-woman-jailed-afte...

Not that it makes it any better of course, in fact the article talks about tens of other women in the same circumstance...

Truly horrible, evil stuff.

InitialLastName• 4 years ago

Despite the link in the article, these appear to be two different women -- referred to as "Elsy" and "Esme" -- one who was sentenced 10 years ago, the other who was sentenced last week.

wonderwonder3• 4 years ago

To be fair, this could be Texas or Louisiana in a year or two.

astura3• 4 years ago

This is happening in the US right now

https://www.bbc.com/news/world-us-canada-59214544

https://www.plannedparenthoodaction.org/planned-parenthood-a...

claytongulick• 4 years ago

This is the sort of statement that fuels needless divisiveness.

Regardless of your political stance on abortion, I don't know of any proposal in any state that would prevent it in cases of medical need.

It varies by state, but there are also exceptions for rape, age, and several others.

There's no need for a straw man here, the issue is complex enough without the hyperbole.

jinpa_zangpo2• 4 years ago

The real reason for the risk of default is that El Salvador was counting on a loan from the IMF and the IMF refused to make a loan to El Salvador while Bitcoin is legal currency. Despite his misadventures with Bitcoin, President Bukele is wildly popular in El Salvador.

RobertDeNiro• 4 years ago

The IMF is anti cryptocurrency ?

xvector• 4 years ago

Most definitely - it takes away from their power.

pibechorro• 4 years ago

Ofcourse. they muscled Argentina to prevent banks from dealing in it, despite popular support and the banks announcing it.

webinvest• 4 years ago

Yes.

IAmEveryone• 4 years ago

The IMF is anti-idiocy. So yes.

collyw• 4 years ago

That would depend on whether they control the cryptocurrency I imagine.

toomuchtodo3• 4 years ago

The IMF is anti-gambling-with-soverign/borrowed-funds.

neonihil3• 4 years ago

They are happy with their monopoly as it is.

csomar4• 4 years ago

From the papers they released, I don't think they are. But this is an institution that works with SDR [https://en.wikipedia.org/wiki/Special_drawing_rights]; so they are not going to "understand" Bitcoin. In a sense, they have their own Bitcoin.

And I put understand in quotes because the IMF does get Bitcoin, Crypto and finance better than most countries. They understand that crypto is mostly bad news for weak countries because they are already having trouble with capital outflow as is.

splix2• 4 years ago

IMF, as well as World bank and co, are anti-anything that could help a country to be less dependent on Wall Street.

See https://en.wikipedia.org/wiki/Structural_adjustment#Criticis... and https://en.wikipedia.org/wiki/Enough_Is_Enough_(letter) for examples.

manimino• 4 years ago

This is inaccurate. The IMF and other entities do not give aid or loans to dictatorships, because anything given to a dictatorship goes straight to the cronies at the top.

El Salvador started having this problem as Bukele eliminated other branches of government. That's why he pushed Bitcoin adoption in the first place - to work around the problems caused by his desired form of government.

jrvarela565• 4 years ago

LOL they lend to democracies in third world countries like mine where the money goes straight to the cronies at the top (Panama; I know the term is outdated but us third-worlders call our countries third-world).

My wife worked for a Ministry here and saw how the world bank shoved loans on non-functioning institutions and charged my country interest ON THE AVAILABLE FUNDS (like a credit line but it doesn't matter if you use it or not) despite them being executed or not.

I dont know wtf these people are doing, but benevolent they are not.

jinpa_zangpo2• 4 years ago

First, El Salvador is not a dictatorship. President Bukele and his party won in a free election and everyone expects he will win re-eelection in 2024.

Second, no branch of government has been eliminated. What happened is that his party impeached the justices on their supreme court, replacing them with justices from his party. In fact, "packing" the court, the same thing leftists are urging the Democrats to do in the USA.

Third, the claim that the IMF does not lend to dictators is obviously untrue.

csomar4• 4 years ago

The IMF and other entities do not give aid or loans to dictatorships

This is wrong. The IMF, USA, and Europe deal with dictators on a regular basis.

because anything given to a dictatorship goes straight to the cronies at the top.

That's funny because the opposite happened where I live.

El Salvador started having this problem as Bukele eliminated other branches of government. That's why he pushed Bitcoin adoption in the first place - to work around the problems caused by his desired form of government.

El Salvador had an astronomical crime rate, and bad finances long before Bukele. It's unlikely that Bukele (or a single man) can eliminate anything in the government or a democratic system. What happens is these system collapses and Bukele is just the symptom of it.

splix2• 4 years ago

I guess it depends on what is your criteria for "dictatorship", but afaik they _love_ to give loans specifically to dictators. Because they know that the dictators agree on much worse terms as they not the ones who would repay the dept.

Also many countries on the https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-... don't look very democratic. But again, it depends on what is criteria here.

JumpCrisscross3• 4 years ago

real reason for the risk of default is that El Salvador was counting on a loan from the IMF and the IMF refused to make a loan to El Salvador while Bitcoin is legal currency

El Salvador's dollar bonds started crashing right after the Bitcoin announcement, before the IMF bailed; Bukele had already snubbed the IMF six months before when he "fired five top judges and the attorney general" [1].

Bukele is wildly popular in El Salvador

This is correct [2]. I'm not certain how this makes me feel about supporting them when this inevitably fails.

[1] https://www.bloomberg.com/news/articles/2021-11-22/bitcoin-b...

[2] https://www.reuters.com/markets/currencies/majority-salvador...

csomar4• 4 years ago

Despite his misadventures with Bitcoin, President Bukele is wildly popular in El Salvador.

He seems to have successfully controlled crime in El Salvador. Usually, there is something behind these strong men if they are still popular. Homicide is down from 103 in 2015 to 17.6 last year. People will stick with such figure; it's not clear why previous rulers have failed. 103 is scary as shit number. Bitcoin will look like a blip in his mishaps from the citizenry point of view.

Barrera• 4 years ago

In a statement, Fitch explained: “The downgrade reflects heightened financing risks stemming from increased reliance on short-term debt, a $800 million Eurobond repayment due in January 2023, a still-high fiscal deficit, limited scope for additional local market financing, uncertain access to additional multilateral funding and external market financing given high borrowing costs.”

Following through to the linked statement:

In Fitch's view, weakening of institutions and concentration of power in the presidency have increased policy unpredictability, and the adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023.

https://www.fitchratings.com/research/sovereigns/fitch-downg...

So it's not just the exchange rate volatility that's at issue, but the possibility that the IMF will make good on its warnings and not backstop the country until its bitcoin venture ends. That, and the other political stuff, combine to make the country look more risky to creditors.

Later in the Fitch article:

The recently published IMF Article IV recommends a fiscal adjustment of 4pp of GDP to put the debt burden on a steady downward path, strengthening the medium-term fiscal framework, improvements in governance in reporting and audits, implementing revised anti- money laundering laws, and removing bitcoin as legal tender while improving regulation and oversight of the virtual currency system.

pluc• 4 years ago

A wildly speculative digital currency is fluctuating, story at 11

mywittyname• 4 years ago

The story is only tangentially related to BTC. The article could eliminate all mention of crypto without any information loss. It's only included for the clicks.

stncls• 4 years ago

What was the impetus behind El Salvador's adoption of bitcoin? The bill seems to have been introduced by President Nayib Bukele, whose background is law.

This recent story [1] about bitcoin being pushed by fishy operatives in Catalonia is what got me curious.

[1] https://www.occrp.org/en/investigations/fueling-secession-pr... / https://news.ycombinator.com/item?id=31317907

qgin2• 4 years ago

Bukele has often outlined his economic thesis around Bitcoin on Twitter:

El Salvador just bought the dip! 150 coins at an average USD price of ~$48,670 #Bitcoin

https://twitter.com/nayibbukele/status/1467000621354135555

Missed the f**ing bottom by 7 minutes

https://twitter.com/nayibbukele/status/1467003967133687809

kumarvvr3• 4 years ago

Bitcoin is the biggest troll on the planet. A nerdy idea that took hold because druggies found it convenient to use and then it became "mainstream" and an "asset" and an "investment", with people putting their life savings because they "believe it is going to go up".

Its actually a reflection on the current state of society, all the materialism and irrationality personified. The greed, the "hustle", a modern incarnation of snake oil.

cmrdporcupine2• 4 years ago

If it was only druggies, that'd be great, cuz it'd be relatively confined, really. But I don't think that can explain the ridiculous valuations on its own. It's clear there are far larger parties than just drug trafficking and hobbyists and crypto-promoters and "retail investors".

My guess is large movements of capital out of places like Iran, China, and Russia.

kumarvvr3• 4 years ago

Perhaps players are using it as a "exchange", as in a book / record. Ultimately, its just numbers on a piece of hard-disk.

nradov• 4 years ago

Yes you're exactly right. Wealthy Chinese can purchase mining hardware and electricity using the local funny money, then sell the resulting Bitcoins for actual hard currency. The Chinese authorities have been cracking down but it's hard to stop completely.

otterley2• 4 years ago

My hypothesis is that people in the drug trade and other illicit industries (hacking for hire, etc.) are the ones who initially gave Bitcoin its early value - much lower than it is today, but above close-to-zero. Then, the general public noticed this new class of appreciating asset, and that’s when the price really started to go up.

throw1234651234• 4 years ago

Yea, except compare the ease, cost, and time of bank wiring your family $5000 to get out of a country where a war started and sending BTC. Something crypto nay-sayers conveniently ignore.

kumarvvr3• 4 years ago

Exactly. I understand the value of the Blockchain, as a distributed, albeit inefficient, ledger of transactions that are anonymous and hard to destroy.

But here we have a country, millions of peoples hard work and assets being converted to bitcoin. How exactly does demonstrate critical thinking, planning or heck, even a plan?

WA• 4 years ago

And the crypto bros conveniently ignore that you can’t easily exchange your BTC for actual cash to buy real things without an exchange or a bank account.

JoeyBananas• 4 years ago

Monero is better for that, and the price hasn't crashed

nivertech• 4 years ago

You are not wiring $5000, you adding a new event to a globally-replicated Event Store database, while other people and entities are speculating on theses events using real money, money surrogates, and/or electricity.

NicoJuicy• 4 years ago

Sending 15K within the EU is free - https://brussels-express.eu/bank-transfers-will-immediate-fr...

Sending with Wise over multiple currencies is going to be much cheaper than sending currency to currency over BTC...

Banks are also safer and covered against fraud. Eg. the other article about Coinbase and it's depositors today.

Multiple things crypto "yes-claimers" ignore. But yeah, they "like" the volatility. Except when it drops ofc.

rchaud3• 4 years ago

1 BTC = 1 BTC, so how long does it take to convert it to $5000?

d_burfoot• 4 years ago

Do you know why El Salvador adopted BitCoin? Previously they used the US dollar as their currency, because no one had any faith in a Salvadoran currency, even their own citizens. But doing this is basically meant that ES was paying tribute to the US, since the dollar continually loses value as more are created. US citizens at least get some benefit when the government prints trillions of dollars, in the form of government handouts; ES residents just get screwed.

lxgr• 4 years ago

On a Bitcoin standard, instead of sponsoring the US, wouldn't El Salvador just sponsor early/current Bitcoin holders instead?

Replacing one currency not under the government's control with another doesn't seem to achieve all that much, and arguably, picking a deflationary currency at that might be much worse.

jcranmer• 4 years ago

And how many El Salvadorans see the benefits of new bitcoins being created?

lizknope• 4 years ago

Serious question, why don't people have faith in the El Salvadoran currency? Why don't they try to fix the problems that are causing that lack of faith?

rchaud3• 4 years ago

Government handouts are decided by Congress. Monetary policy is set by the Fed. Fed issuing more currency doesn't change the number on your unemployment check.

The downside of using the USD as a local currency is that the local central bank cannot set its own lending rates (markets will set rates at what the larger dollarized economy in the US is at) and has less control over monetary policy.

SpicyLemonZest• 4 years ago

I think El Salvador adopted Bitcoin because their president believes it's going to the moon and adopting it will make everyone rich. He's repeatedly talked about "buying the dip", for example, but there's no obvious reason why El Salvador would want or need to buy the dip if they weren't hoping to benefit from future price increases.

el-salvador18• 4 years ago

Previously they used the US dollar as their currency, because no one had any faith in a Salvadoran currency, even their own citizens.

El Salvador didn't dollarize due to inflation, as other countries have done (Ecuador or Zimbabwe).

The Salvadoran Colón was never an unstable currency.

One of the main advantages we had after dollarization was the lowering of loan interest rates.

I was too young to have loans at that time, but I recall my parents mentioning the repaid their mortgage in a shorter time because of that.

Also no foreign exchange risk with the major trading partner and the country where 2 million Salvadorans live: The U.S.

macacoprego• 4 years ago

This sounds like a comment straight up from reddit

banannaise• 4 years ago

Baudrillard strikes again. The entirety of Bitcoin's value is prestige - it has value by being associated with people who are trusted when they say it has value.

Giorgi• 4 years ago

Another bullshit article. They purchased more bitcoin just several days ago and they debt is due... wait for it... NEXT YEAR.

They will be fine.

ernirulez• 4 years ago

I can't really understand how a post by El País can make it to hacker news. El país is a disinformation newspaper full of manipulation and indoctrination controlled by governments. At least this is the case in Spain, do reading this newspaper is just killing your brain

El Salvador expected to default as Bitcoin plummets

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