I’m about as far from a crypto defender as you can get, but I think this page misses the point. If El Salvador is planning to use Bitcoin as a medium of exchange, which by all accounts they are, their being “up” or “down” must be measured by the size of the economic activity that Bitcoin allowed them to facilitate. That figure is harder to get at.
Viewed this way, the additional purchases which seem foolish and laughable might even be signs of success: perhaps Bitcoin business is booming so hard they need to expand their reserves?
To be clear, I highly doubt that’s the case here, but if we’re going to assess success we should at least try to steelman their position. There’s plenty to mock about this change without taking cheap shots.
They're investing FX reserves in Bitcoin. Their imports are not priced in Bitcoin. Bitcoin going down relative to the currencies they import in hurts El Salvador's ability to finance them. Which raises borrowing costs [1]. Which leads to exporters demanding earlier payment [2].
San Salvador has less than three months' imports in reserves [3][4][5]. Their Bitcoin experiment has scared off crisis lenders [6]. There is no good ending for them right now.
Thanks for the sources to read further in the topic! I was always curious to know how their “experiment” was going to turn out and it seems like the results so far aren’t good
They're not trying to use Bitcoin as a medium of exchange.
They're trying to funnel people into their own centralized crypto app, where people may (or may not) be allowed to send Bitcoin via the Lightning Netowrk.
Maybe the larger point is that bitcoin is too volatile a currency to be used as a medium of exchange? Surely they must be holding on to a decent amount of BTC and as such lost value, if not the government itself, then at least the country as a whole.
Currently, Bitcoin adds zero value, even if it was used for every single transaction in the country.
Currencies are not money because they don't store value. Bitcoin was a promise to be money in the full sense.
It's ability to store value is questionable, since it became a highly speculative and fraud facilitation asset. And the other aspects of being money are worse than currencies.
El Salvador has a trade deficit and can't print USDs; part of the point of adopting BTC was to allow Salvadorans abroad to send money into the country without paying wire fees.
the same argument can be said about literally every non-crypto currency. A US dollar doesn't have any "value" other than the small amount of heat you get if you burn your paper bills.
Nope. As a Salvadorean the "they've blown about 1% of their annual budget" argument irritates me...
First of all: "annual government budget of about $5.6B" this is misleading, the government is 100% reliant on NEW debt to operate, there is NO "disposable income" not even a penny...
Heck, the goverment just approved a new $650M debt package to execute a "last resort" strategy and try to pay old debt by buying bonds expiring on early 2023 at below face-value price, because lenders have pretty much lost faith on the goverment having the capacity to pay, so they are "cutting loses".
1% may look like nothing at face value, but when you are even a little bit informed about Salvadorean reality you know that $104M is A LOT of money for a country where the ICUs of the most important hospital of the public network get FLOODED every time there is a couple of hours of rain [1] and rebuilding the whole hospital would cost $170M...
> So they've blown about 1% of their annual budget on BTC. Far from catastrophic
The Bitcoin decision is single handedly marching San Salvador into a currency crisis [1]. Food and fuel are among their top imports, so that likely leads to political crisis.
> The Bitcoin decision is single handedly marching San Salvador into a currency crisis
This is an extreme oversimplification. The issue is that decision to make Bitcoin legal tender has put El Salvador at odds with the IMF. Arguably they would have been at odds anyway, and the IMF is simply using this issue as leverage (as well as to foment internal political divisions). The issue is primarily political (not economic!), especially considering the small amount of money invested in relation to the country's overall finances.
1.8% of a national budget is a huge deal though. For the US government that would be 2 - 3 NASAs. Not catastrophic but that doesn't mean we shouldn't push back against national governments gambling with their treasuries on purely speculative assets.
Their credit rating has been downgraded to CCC (ie DEEP JUNK)[0]
They're looking at financing needs off 15% of GDP:
>Both JPMorgan and the International Monetary Fund warn the country is on an unsustainable path, with gross financing needs set to surpass 15% of GDP from 2022 forward — and public debt on track to hit 96% of GDP by 2026 under current policies. [1]
Not defending their Bitcoin decision, but I think an important bit of context that is easy to miss is that small developing countries with not too many relevant exports (besides tourism) or financial sector, especially those close to the US, don't have an enviable set of options when it comes to FX regimes.
Either you try to exercise 'fiscal discipline', meaning that you effectively have to answer to Washington pundits and Wall Street Bankers wrt to your economic policies, or you try to sustain an unmaintainable dollar peg and eventually have to ask for an IMF bailout, or you let your currency float and risk a spiral of devaluation and inflation. Argentina has gone pretty much full circle on those options, ask them how it feels.
Even just speculating about a peg substantially below the current exchange rate sounds like a great way to send your exchange rate downwards.
And low exchange rates only help with exports if you have an export industry (tourism reacts to a lot more factors than just prices - the instability coming from a currency crisis may not help, eg). And higher prices for imports don't help with industrial development. Countries rich in natural resources face a different set of problems, which is why I excluded them in the first post.
I always thought it wasn't such a bad idea, it's a country reliant on remittances, and wire transfers and alternatives are expensive (I used to work at Xoom/PayPal)
The other thing is that it never was well adopted by the public. I visited the country in January and some restaurants mentioned which items you could and couldn't buy using bitcoin on the menu
That's nothing in bitcoin world. It routinely gains more than few hundreds percent in 3 years. It is also know to drop below 20% of previous peak price.
It hasn't been around long enough to "routinely" do anything on a three-year period. There have been 4 such periods. That's not enough samples to say anything is routine.
This is the big thing. #1 foreign income source is expat workers. Make it easier for people to send money home, send more people to USA, and its good for the economy that has no other resources.
Irrelevant. San Salvador has less than 3 months' imports in foreign reserves on hand (about 2 years' on a net basis [1][2]) and an $800mm bond payment due in January it can't afford. This is the stupidity of their Bitcoin play. They don't have the time horizon to handle something this volatile.
Stock market tanked 80% this year. It’s partially recovered. Being down 45% at this point isn’t even that bad, regardless of which asset you’re talking about.
BTC is/already has entered a macro bear market for the next 2-4 years. If El Salvador can stick it out, they’ll end up very well off during the next bull run.
Next, do tech stocks. No matter your position, you have to be pretty bitter to actually develop and pay to host such a lame "told you!" site in a bear market.
"Oopsie woopsie! They're very down! Would you also like to irresponsibly gamble away your country's finances?"
It's 47 million in unrealized losses, even for a tiny nation absolute peanuts. It's a fraction of a fraction of the budget. Even the worst case is manageable, and there's a significant chance that it strongly bounces when the macro condition improves.
Should a nation put their entire treasury into BTC? Absolutely not, but diversification of assets is sane. Big lumps of low risk/low return, small lumps of high risk/high return potential. Business as usual.
If the central bank of a cash-strapped nation started buying tech stocks with their foreign reserves, they’d rightfully be called out as loonies.
It’s why countries with surplus cash go through a lot of trouble to segregate their sovereign wealth funds from FX reserves. If the former goes down, it’s embarrassing. If the latter crashes, it’s existential.
"If the central bank of a cash-strapped nation started buying tech stocks with their foreign reserves, they’d rightfully be called out as loonies."
It's all optics. Because the above is exactly what happens, stocks got pumped 13 years in a row due to central bank policy. Do they own the stock? No, but they fully control the macro.
But anyway, my main point was to give a little pushback to the narrative, which seems driven by hate, a superficial "told ya", followed by dubious claims. It does not reek of a person that actually cares about any humanitarian issue at all.
This recent episode of Crypto Critics' Corner podcast talks about the current situation in El Salvador and what difficulties the country is facing that led them to make this investment.
This won't age very well, just like all the other "bitcoin is dead" posts made during bear markets.
Also, El Salvador seems to be "up" if their whole economy is measured, and that's mostly because of their Bitcoin strategy. Especially, their tourism is up 81% compared to pre-pandemic levels. https://cointelegraph.com/news/tourists-flock-to-el-salvador...
> their tourism is up 81% compared to pre-pandemic levels
"Global international tourist arrivals more than doubled (+130%) in January 2022 compared to 2021," with "Europe (+199%) and the Americas (+97%)" posting the strongest results [1].
El Salvador's tourism numbers are weaker than its neighbors'. (Explosions of gang violence don't help [2].)
> The report by the WTO states that some “Central American destinations have the best results compared to 2019,” including El Salvador at +81% compared with 2019, or pre-pandemic levels.
It's not clear in the source article where that figure comes from. When translated to English, the source article[1] says:
> In fact, several islands in the Caribbean, as well as Asia and the Pacific, along with some small European and Central American destinations have the best results compared to 2019: Seychelles (-27%), Bulgaria and Curaçao (both -20%), El Salvador (-19%), Serbia and Maldives (both -13%), Dominican Republic (-11%), Albania (-7% ) and Andorra (-3%). Bosnia and Herzegovina (+2%) even exceeded pre-pandemic levels.
Based on the quotation, it seems like that's the paragraph being referenced, but the figures don't match at all.
The +81% corresponds to the -19%. You just need to ignore the “+”. What they seem to be saying is that, while only at 81% of pre-pandemic levels, El Salvador is part of the group of countries having the best (least worst) deltas to 2019.
The article you link says there were 1.1M visitors so far. It also says "thousands of Bitcoiners have made the trip". I'm not really sure where you're getting the idea that tourists and the economy is up due to bitcoin, versus some other factors.
How is their tourism related to their Bitcoin strategy.
I expect this site, and those like it, will age quite well.
Frankly, it doesn't matter if BTC is up in 10 years. Remember the saying: the market can remain irrational longer than you can remain solvent. Nation-states aren't immune to this phenomenon.
> How is their tourism related to their Bitcoin strategy.
Why are we talking about El Salvador right now? What's getting it in the news? What's getting people to read its Wikipedia page? What's reminding people it exists?
As a Savadorean: It is not... the RECOVERY on tourism is most likely due the relaxation on rules regarding COVID-19, a negative COVID-19 test or even proof of vaccination is no longer required to enter the country. You no longer are required to use a mask to enter restaurants or pretty much any public place. That alone was enough motive to entice enough people (particularly Antivax Salvadoreans leaving abroad) to come visit and cause that rebound on pre-pandemic levels.
But that serves no good to the agenda of the pro-bitcoin, maxis and the goverment itself, so...
If I had to guess, tourism would be up because COVID calmed down a bit so people are a bit more willing to travel now. I don't see the connection to BTC
Tourism to Costa Rica hasn’t seen the same recovery trajectory to El Salvador, even though Costa Rica historically has been much more popular than El Salvador.
IIRC, CR is still down 20% since COVID started and ES is up 20%.
As a Salvadorean I have to say the "El Salvador seems to be up" argument is bullshit, I suspect you are already aware given that your source for claiming "tourism is up 81%" is Cointelegraph... but just to clarify those numbers that the goverment and its propaganda machine made sure to spread:
1 - It is not growth it is RECOVERY, tourism is back to 81% of its pre-pandemic levels. Even the own goverment sources say that if you read the pages below the propaganda [1]. So no, tourism is not up compared to pre-pandemic levels, instead we recovered 8 out of every 10 visitors we had before the pandemic...
2 - No, it is not because of Bitcoin. I understand if you are pro-bitcoin, that's alright. But reality in here is that pretty much no business is accepting Bitcoin any more, even plenty of the business that did accepted it when the law passed have gone back to not taking it. The large lines you used to see on the Bitcoin ATMs are gone now that pretty much everyone that wanted to claim the $30 USD bonus have got it (and the overwhelming majority of them converted it to cash immediately... ) and the Bitcoin ATMs are as empty as a ghost town except for the occasional BTC enthusiast/speculator that uses it to cash out some money.
I live here... But if you believe I'm wrong or biased, I invite you to come here and check things for yourself, you may be up for a reality check regarding the goverment propaganda, but you will still have a good time doing tourism.
Yeah, it seems that the tourism number was mispresented.
Still, Bitcoin strategy put El Salvador on the global map, and I think it'll be positive for the country in the long run. In the history books, El Salvador will always be the first country to adopt bitcoin. I'm pro-bitcoin, but I'm pretty grounded on reality and I never expected it to transform the country overnight. It's a long game, which El Salvador is currently leading compared to other countries.
Economics is more complicated that a short term price move.
If there is sufficient unpayable dollar denominated debt, the central banks and governments will be forced to once again print trillions to re-inflate the debt bubble, incentivizing exponentially more bad debt. How do you suppose this process ends?
Readit News
Viewed this way, the additional purchases which seem foolish and laughable might even be signs of success: perhaps Bitcoin business is booming so hard they need to expand their reserves?
To be clear, I highly doubt that’s the case here, but if we’re going to assess success we should at least try to steelman their position. There’s plenty to mock about this change without taking cheap shots.
San Salvador has less than three months' imports in reserves [3][4][5]. Their Bitcoin experiment has scared off crisis lenders [6]. There is no good ending for them right now.
[1] https://www.reuters.com/markets/europe/crypto-crash-leaves-e...
[2] https://fred.stlouisfed.org/series/SLVBCAGDPBP6
[3] https://tradingeconomics.com/el-salvador/imports
[4] https://tradingeconomics.com/el-salvador/foreign-exchange-re...
[5] https://data.worldbank.org/indicator/BN.CAB.XOKA.CD?location...
[6] https://www.imf.org/en/News/Articles/2022/02/15/cf-el-salvad...
They're trying to funnel people into their own centralized crypto app, where people may (or may not) be allowed to send Bitcoin via the Lightning Netowrk.
Currencies are not money because they don't store value. Bitcoin was a promise to be money in the full sense.
It's ability to store value is questionable, since it became a highly speculative and fraud facilitation asset. And the other aspects of being money are worse than currencies.
- El Salvador has spent $104M on BTC
- They have lost about $47M on their investment
- They have a GDP of about $28B [1]
- They have an annual government budget of about $5.6B [2]
So they've blown about 1% of their annual budget on BTC. Far from catastrophic.
[1] https://tradingeconomics.com/el-salvador/gdp
[2] https://tradingeconomics.com/el-salvador/government-spending
First of all: "annual government budget of about $5.6B" this is misleading, the government is 100% reliant on NEW debt to operate, there is NO "disposable income" not even a penny...
Heck, the goverment just approved a new $650M debt package to execute a "last resort" strategy and try to pay old debt by buying bonds expiring on early 2023 at below face-value price, because lenders have pretty much lost faith on the goverment having the capacity to pay, so they are "cutting loses".
1% may look like nothing at face value, but when you are even a little bit informed about Salvadorean reality you know that $104M is A LOT of money for a country where the ICUs of the most important hospital of the public network get FLOODED every time there is a couple of hours of rain [1] and rebuilding the whole hospital would cost $170M...
[1] https://www.elsalvador.com/noticias/nacional/tormenta-bonnie...
Appreciate all the other info!
The Bitcoin decision is single handedly marching San Salvador into a currency crisis [1]. Food and fuel are among their top imports, so that likely leads to political crisis.
[1] https://news.ycombinator.com/item?id=32487630
This is an extreme oversimplification. The issue is that decision to make Bitcoin legal tender has put El Salvador at odds with the IMF. Arguably they would have been at odds anyway, and the IMF is simply using this issue as leverage (as well as to foment internal political divisions). The issue is primarily political (not economic!), especially considering the small amount of money invested in relation to the country's overall finances.
How can they be having a currency crisis when they don't have a currency? It's more accurate to say they're headed for insolvency or something.
Their credit rating has been downgraded to CCC (ie DEEP JUNK)[0]
They're looking at financing needs off 15% of GDP:
>Both JPMorgan and the International Monetary Fund warn the country is on an unsustainable path, with gross financing needs set to surpass 15% of GDP from 2022 forward — and public debt on track to hit 96% of GDP by 2026 under current policies. [1]
[0]https://www.fitchratings.com/research/sovereigns/fitch-downg...
[1]https://www.cnbc.com/2022/06/25/el-salvador-bitcoin-experime...
I know, better rating, world reserve currency, etc. Just adding some context to "fiscal responsibility".
They haven’t lost anything unless they sell.
Either you try to exercise 'fiscal discipline', meaning that you effectively have to answer to Washington pundits and Wall Street Bankers wrt to your economic policies, or you try to sustain an unmaintainable dollar peg and eventually have to ask for an IMF bailout, or you let your currency float and risk a spiral of devaluation and inflation. Argentina has gone pretty much full circle on those options, ask them how it feels.
Deleted Comment
And low exchange rates only help with exports if you have an export industry (tourism reacts to a lot more factors than just prices - the instability coming from a currency crisis may not help, eg). And higher prices for imports don't help with industrial development. Countries rich in natural resources face a different set of problems, which is why I excluded them in the first post.
I always thought it wasn't such a bad idea, it's a country reliant on remittances, and wire transfers and alternatives are expensive (I used to work at Xoom/PayPal)
The other thing is that it never was well adopted by the public. I visited the country in January and some restaurants mentioned which items you could and couldn't buy using bitcoin on the menu
This is the big thing. #1 foreign income source is expat workers. Make it easier for people to send money home, send more people to USA, and its good for the economy that has no other resources.
What exactly is the thinking there? Was it just a price limit or something more involved?
Irrelevant. San Salvador has less than 3 months' imports in foreign reserves on hand (about 2 years' on a net basis [1][2]) and an $800mm bond payment due in January it can't afford. This is the stupidity of their Bitcoin play. They don't have the time horizon to handle something this volatile.
[1] https://data.worldbank.org/indicator/BN.CAB.XOKA.CD?location...
[2] https://data.worldbank.org/indicator/FI.RES.TOTL.CD?location...
BTC is/already has entered a macro bear market for the next 2-4 years. If El Salvador can stick it out, they’ll end up very well off during the next bull run.
Which stock market is that? Certainly not US.
"Oopsie woopsie! They're very down! Would you also like to irresponsibly gamble away your country's finances?"
It's 47 million in unrealized losses, even for a tiny nation absolute peanuts. It's a fraction of a fraction of the budget. Even the worst case is manageable, and there's a significant chance that it strongly bounces when the macro condition improves.
Should a nation put their entire treasury into BTC? Absolutely not, but diversification of assets is sane. Big lumps of low risk/low return, small lumps of high risk/high return potential. Business as usual.
If the central bank of a cash-strapped nation started buying tech stocks with their foreign reserves, they’d rightfully be called out as loonies.
It’s why countries with surplus cash go through a lot of trouble to segregate their sovereign wealth funds from FX reserves. If the former goes down, it’s embarrassing. If the latter crashes, it’s existential.
It's all optics. Because the above is exactly what happens, stocks got pumped 13 years in a row due to central bank policy. Do they own the stock? No, but they fully control the macro.
But anyway, my main point was to give a little pushback to the narrative, which seems driven by hate, a superficial "told ya", followed by dubious claims. It does not reek of a person that actually cares about any humanitarian issue at all.
https://cryptocriticscorner.com/2022/03/29/episode-63-we-nee...
Also, El Salvador seems to be "up" if their whole economy is measured, and that's mostly because of their Bitcoin strategy. Especially, their tourism is up 81% compared to pre-pandemic levels. https://cointelegraph.com/news/tourists-flock-to-el-salvador...
"Global international tourist arrivals more than doubled (+130%) in January 2022 compared to 2021," with "Europe (+199%) and the Americas (+97%)" posting the strongest results [1].
El Salvador's tourism numbers are weaker than its neighbors'. (Explosions of gang violence don't help [2].)
[1] https://www.unwto.org/news/tourism-enjoys-strong-start-to-20...
[2] https://www.nytimes.com/2022/03/27/world/americas/el-salvado...
> The report by the WTO states that some “Central American destinations have the best results compared to 2019,” including El Salvador at +81% compared with 2019, or pre-pandemic levels.
It's not clear in the source article where that figure comes from. When translated to English, the source article[1] says:
> In fact, several islands in the Caribbean, as well as Asia and the Pacific, along with some small European and Central American destinations have the best results compared to 2019: Seychelles (-27%), Bulgaria and Curaçao (both -20%), El Salvador (-19%), Serbia and Maldives (both -13%), Dominican Republic (-11%), Albania (-7% ) and Andorra (-3%). Bosnia and Herzegovina (+2%) even exceeded pre-pandemic levels.
Based on the quotation, it seems like that's the paragraph being referenced, but the figures don't match at all.
[1] https://www.unwto.org/es/news/turismo-inicia-2022-fuerte-per...
I expect this site, and those like it, will age quite well.
Frankly, it doesn't matter if BTC is up in 10 years. Remember the saying: the market can remain irrational longer than you can remain solvent. Nation-states aren't immune to this phenomenon.
Why are we talking about El Salvador right now? What's getting it in the news? What's getting people to read its Wikipedia page? What's reminding people it exists?
But that serves no good to the agenda of the pro-bitcoin, maxis and the goverment itself, so...
IIRC, CR is still down 20% since COVID started and ES is up 20%.
1 - It is not growth it is RECOVERY, tourism is back to 81% of its pre-pandemic levels. Even the own goverment sources say that if you read the pages below the propaganda [1]. So no, tourism is not up compared to pre-pandemic levels, instead we recovered 8 out of every 10 visitors we had before the pandemic...
2 - No, it is not because of Bitcoin. I understand if you are pro-bitcoin, that's alright. But reality in here is that pretty much no business is accepting Bitcoin any more, even plenty of the business that did accepted it when the law passed have gone back to not taking it. The large lines you used to see on the Bitcoin ATMs are gone now that pretty much everyone that wanted to claim the $30 USD bonus have got it (and the overwhelming majority of them converted it to cash immediately... ) and the Bitcoin ATMs are as empty as a ghost town except for the occasional BTC enthusiast/speculator that uses it to cash out some money.
I live here... But if you believe I'm wrong or biased, I invite you to come here and check things for yourself, you may be up for a reality check regarding the goverment propaganda, but you will still have a good time doing tourism.
[1] https://www.presidencia.gob.sv/el-salvador-es-el-segundo-pai...
Still, Bitcoin strategy put El Salvador on the global map, and I think it'll be positive for the country in the long run. In the history books, El Salvador will always be the first country to adopt bitcoin. I'm pro-bitcoin, but I'm pretty grounded on reality and I never expected it to transform the country overnight. It's a long game, which El Salvador is currently leading compared to other countries.
Deleted Comment
Deleted Comment
You don't know that, do you?
I guess it won't age well if what we call El Salvador today no longer exists.
Dead Comment
If there is sufficient unpayable dollar denominated debt, the central banks and governments will be forced to once again print trillions to re-inflate the debt bubble, incentivizing exponentially more bad debt. How do you suppose this process ends?
I and other hypothesise that the Bitcoin thing was an attempt to handwave some fresh dollars into existence, as numbers in the Chivo app.
This didn't work because Chivo was incompetent rubbish.