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Is Bitcoin’s legal tender status causing ‘currency chaos’ in El Salvador

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3 years ago

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Days after El Salvador became the world’s first country to adopt Bitcoin as legal tender, it hasn’t garnered an endorsement from many crypto proponents. In a recent podcast, business and policy reporter of the New York Times, Ephrat Livni, discussed issues around the rollout by President Nayib Bukele.

 She argued that Bitcoin’s adoption as legal tender, was being “advanced as a project for financial inclusion,” when a vast majority in the country didn’t have bank accounts. It is estimated

that 71% of the population is unbanked. Therefore, what’s being termed as a teething problem in the implementation week, is in fact, fundamental.

Economist Steve Hanke explained the “currency chaos” in the country, with 80% of Salvadorans unaware of the value of Bitcoin. 

 While Bitcoin and DeFi offer several benefits, Livni argued that the dream of “economic liberation” with Bitcoin adoption was debatable in El Salvador. Bitcoin as an alternative payment method was promising, but it hadn’t been tested on such a large scale.

Moreover, the Central American country already stood in violation of several digital asset regulations by the Financial Action Task Force (FATF). It is widely known that El Salvador’s Congress had passed the bill with little debate, in a video conference in June. Hence, it was an authoritarian decision, Livni reiterated, adding,

“There is a couple of problems in the Bitcoin law even from the point of view of Bitcoin enthusiasts in the US.”

After the rollout, Coin Center’s Jerry Brito had retweeted a statement by journalist Naomi Brockwell,

“I love bitcoin. But I won’t cheer a monetary system enforced through threat of violence.”

This explained some of the ‘philosophical’ problems that Bitcoin proponents have against Article 7 of El Salvador’s Bitcoin law. On the background of Bitcoin as a payment mechanism, Livni explained,

“They adopt this non-governmental decentralized money as the money that government recognizes and then mandates its use.”

Apart from philosophical arguments, Livni talked about practical struggles like price volatility around Bitcoin adoption. She argued that “a country has taken on a risk” on a much larger scale than what an investor takes. Evidently, Bitcoin Volatility Index is hovering over 100% as press time. 

But, will the project be a success? Currently, there is no determination if the law is a success or failure, as per Livni. 

“Maybe both arguments will be made simultaneously all the time.”

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