Since making bitcoin an official currency on its territory, El Salvador has found itself in the grip of a veritable campaign of distrust and surveillance by the United States. Without hiding its deep unease, Joe Biden’s country has put in place a legal arsenal to protect itself from the repercussions of the Salvadoran government’s decision on the American financial system. Why does the US feel threatened and what steps has it taken in response? All the answers in this article.
BTC Adoption in El Salvador Threatens US Dollar Supremacy
Today is September 7, 2021. El Salvador has just made bitcoin an official currency. For the IMF and the World Bank, ” authorities [salvadoriennes] should abandon their plans to increase state exposure to bitcoin.” To put pressure on the Salvadoran president, the IMF blocked $1.3 billion in aid intended for El Salvador.
For their part, the USA, fearing the impact of the unpredictable volatility of bitcoin on the economy of the small Central American country, quickly went into a state of alert. Victoria Nuland, United States Under Secretary of State for Political Affairs, met with the Salvadoran president to dissuade him, but to no avail. One thing is clear: El Salvador’s decision is disturbing.
El Salvador wants to replace the US dollar with BTC by 2040
To understand the reasons why the United States is worried about the adoption of bitcoin in El Salvador, you have to see the very ambitious program of the president of the country. By adopting BTC as legal tender, the latter wishes to:
- boost the country’s economic growth, by allowing the market to freely set the exchange rate between BTC and the US dollar,
- strengthen the integration into the real economy of the poorly banked Salvadoran population,
- cause an influx of foreign investors in this poor country,
- emancipation from the US dollar and, by extension, the economic policy of the US Federal Reserve by 2040.
During a video message, the quarantined president also pointed out that remittances from Salvadorans in the diaspora are equivalent to almost 22% of the country’s GDP.
He therefore deduces that the adoption of bitcoin as legal tender would make it possible to circumvent exchange fees and commissions, which will save users several million dollars.
The fear of a destabilization of the American financial system
For the United States, it is clear that the adoption of bitcoin in El Salvador is not welcome. You should know that this small, poor country in Central America is the first country in the world to make BTC an official currency.
This move could inspire other US states to consider moving away from the dollar and the economic policy of the US Federal Reserve.
However, if we consider that nearly 80% of world trade is denominated in US dollars, the adoption of bitcoin as the official currency in the States could contribute to the gradual dedollarization of world economies and to an imminent end to the reign of the dollar.
President Nayib Bukele’s decision therefore represents a threat to Washington, which senses the risk of destabilization of the American financial system.
Moreover, to this end, the deputy Norma J. Torres, proposed, on April 4, 2022, jointly with the deputy Rick Crawford, a bill entitled “Accountability for Cryptocurrency in El Salvador Act” hear “accountability law regarding cryptocurrencies in El Salvador”.
In a tweet posted on April 5, 2022, she states that “El Salvador’s adoption of bitcoin is not a thoughtful adoption of innovation, but a reckless gamble that is destabilizing the country.”
While acknowledging that El Salvador is an independent and self-governing democracy, Norma Torres asserts that “the United States must put in place a plan to protect our financial systems from the risks of this decision”.
Crypto adoption in El Salvador: what results 2 years later?
Despite criticism, the Salvadoran president remains steadfast on his Bitcoin agenda. Right now, El Salvador has over 2,381 bitcoins and over 212 BTC ATMs spread across its territory.
Similarly, El Salvador now has a National Bitcoin Office created by decree and a financial education program, all aimed at accelerating adoption. The country has even passed a law relating to the issuance of “Volcano Tokens” which are bonds backed by the queen of cryptos.
That said, it is true that the scenario imagined by the government is not going as planned. Indeed, at present, only about 20% of the Salvadoran population uses bitcoin since crypto is only used for payments for 2% of transactions.
Moreover, contrary to the beautiful forecasts, after the crash of cryptocurrencies which made bitcoin lose nearly 50% of its value, the public money of El Salvador converted into BTC lost half of its value.
Perhaps we will have to content ourselves with the words of the country’s finance minister, Alejandro Zelaya, who affirms that “It’s not going to affect us. We haven’t sold any of our possessions [en BTC]. (…) You cannot realize a loss until you sell. No financial decision maker would make the decision to sell when everything is going badly”.
In any case, there is reason to wonder if the country could still have the support of creditors when its public debt risks exploding overnight at the rate of the price of bitcoin.
For the moment, El Salvador shows no signs of weakness. The country is also more confident than ever in the future of bitcoin.
As proof, the government announced a few days ago that it had received commitments worth nearly $1 billion for the creation of a bitcoin mining factory called “Volcano Energy” in Santa Ana, in the north of the country.
With this infrastructure, El Salvador will now be able to mine its own BTC. Adoption will only be accelerated. The US nightmare is clearly not over anytime soon.
To conclude,
The adoption of BTC in El Salvador has sparked a real battle between the Central American country and the United States. Washington’s fears of bitcoin’s threat to US dollar supremacy are palpable. As El Salvador seeks to strengthen its economy, foster financial inclusion, and break free from dollar control, the United States is taking steps to protect itself and maintain economic dominance. The future of this confrontation remains uncertain, but it is clear that the adoption of bitcoin by El Salvador has already caused significant repercussions on the crypto market and especially the international financial system. Only history will tell us how this situation will evolve and what impact it will have on international economic relations.
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