El Salvador abandons Bitcoin as legal tender after failed experiment

Keep in mind that El Salvador is tiny. This is like 14 days of El Salvador's entire GDP. Or scaled to GDP, it's like giving a $1.2 Trillion loan to the USA.

Is that really the message?

If the USD was such a good currency, why does the US operate at a deficit?

In fairness, markets can operate quite well with almost nobody in them being able to argue why. Gold has remarkable staying power but it is rare to find gold proponents who can explain why convincingly. A lot of the arguments for where the value comes from are bunk. If I hear one more person explaining that jewellery matters I'll ... go peacefully about my day I suppose.

Still holds its value though, the economy does not care if people understand why the price signals are so.

And quite apart from that fundamental misalignment, sovereign states having some measure of control over their own monetary policy is arguably a pretty good thing.

The argument is that it'll become more stable if it's adopted as a worldwide currency, kinda like gold.

> That reminds me of Hong Kong, where I used to live and which maintains a large sovereign wealth fund to ensure its currency is pegged to the US dollar.

That doesn't sound like a soverign wealth fund. Foreign currency reserves are not the same thing as a soverign weath fund.

> you don't really own land, you just rent it for a very long term from the government.

This is probably economically a good idea, absent something like georgist land taxes. It eliminates some or all of the incentive to speculate in land, which is of course the whole problem El Salvador ran into with bitcoin as currency.

Correct. The IMF relies on its partners to have interest rates and a currency under central control, so that their debt traps and concomitant devaluation, looting etc can do its work

So... fiat?

Wouldn’t they need to balance a budget first?

Not in my lifetime

They did this to receive a loan from the IMF. The IMF was withholding the loan because of BTC and would not disburse it until they got rid of its status as legal tender.

They only doubled and tripled in value. Gotta wonder what you think they expected

That’s called a rug pull IRL.

I'd be surprised if anyone really used it there, for technical reasons alone, and not even considering the risk part. BTC is still not easy to use.

8% is quite a lot though.

But that doesn't distinguish Bitcoin from other cryptocurrencies. The thing that distinguishes Bitcoin is fame, pure and simple. Everyone has heard of it.

It's false safety. If the government can't get their drop of blood by diluting their fiat, they will simply do it another, more direct way.

At best it will work as long as few enough people are doing it that the government doesn't care.

Except it has none of the properties of gold as an asset. The value of bitcoin is highly correlated with equities and anti-correlated with gold. It’s the opposite of what you want to be holding as a hedge against a stock market crash.

It used to be that buying a Bitcoin today would net you 10000x more if you waited a bit.

Then it was 100x more.

Now 10x more is the best people can dream of. The possibility of getting super rich from Bitcoin is now gone unless you're already rich to start with. Turning $100 into a million dollars made the whole world interested. Turning 100k into a million isn't anything interesting and it's out of reach of most normal people, and those who can throw 100k into something are already investing in other things with similar returns. As a normie, putting in $100 with the hopes of Bitcoin reaching a million would only get you $1000. That's not much different than a couple scratch off lottery tickets.

It'd be much smarter to find the new secret thing that costs $5 now and will net you a million dollars ten years down the road. There's loads of stuff out there that people aren't paying attention to yet. Crypto isn't one of those things.

Because if you/they knew that, then they'd be buying more bitcoin.

On a much smaller scale, your dollar goes up by 5% every year but you still use it everyday because all your monies are in dollars. If all your monies are in btc, you'd have to sell to buy things.

Because they need toilet paper today.

It's like those people who collect action figures and never take them out of the box. I'm not trying to knock it, but I don't think I'll ever understand it.

Sell enough at the top to last you until the next top.

That opinion is not shared by those who think Proof of Stake and no ceiling to supply are bugs vs features.

You don't really believe that do you? The market disagrees as well

Many of us in the BC is digital money camp argued the case that more transactions and a lower transaction fee could be most easily implemented, within the spirit of the founders intent, if we simply increased the size of the transaction buffer, mitigating an obvious bottleneck.

We argued against the complexity of SegWit and Lightning Network.

I think greed and politics won rather than engineering or economics good sense - people didnt want cheaper transactions, it now costs around $15 USD per BTC transaction.

Despite the proliferation of alt-coins using essentially the same code-base, with shorter block-times and larger buffers.. and more programmability - ultimately proof-of-stake might be a better implementation of the block minting process, than proof-of-work.

Yeah the rest of us can continue geeking out over layered network protocol design and technologies like Lightning or Liquid. There is so much going on under the hood but it is so much easier to take the piss and learn nothing. That is no surprise, with the current state of the world.

> a thing that goes up in value is not a good medium of exchange because people don't want to spend it, they want to hoard it.

So... traditional money is good because it forces poor people to spend it? Rich people have no problem converting cash into assets that go up in value and holding onto them converting back at need. It's only poor people that have to hold comparatively high percentage of their assets in something that loses value.

> One concept is that BTC is a good investment. Historically that is undeniable.

I'll deny it.

Bitcoin has seen large gains, that is undeniable. However, that is not the same thing as being a good investment.

Legal tender does not have to be a mandatory means of exchange.

The trouble is, it needs to be more than that if it is to survive. Since inception, mining has mostly been subsidized by new bitcoin, which is capped by design (and about 95% distributed).

Satoshi’s paper assumed that transaction costs would make up for the exponentially declining subsidy, but that hasn’t really happened since it never lived up to his “digital cash” vision.

They care about the economic stability of a country they make loans to. Their loans often come with conditions about how the government can run fiscal or trade policy.

I don't know if that is good or bad but I have heard smart economists argue both sides.

It's reasonable when you think about it from a risk assessment point of view.

The IMF wants to feel that El Salvador (a) will likely be able repay the debt, (b) in a currency that is unlikely to devalue too much. For that reason, the debt would probably be in USD or some other prominent world currency (letting the debt be in El Salvador's local currency would risk them printing money to devalue it, threatening (b)).

So the IMF would probably make the debt in USD. In theory, bitcoin can be exchanged for USD, so in theory, El Salvador could exchange some of their bitcoin into USD to pay the IMF back. But what if bitcoin's value drops precipitously? Or if it becomes illiquid?

It seems the IMF thinks bitcoin is hype, so it expects its value to drop to near zero eventually. That would make it very difficult for a country that has large bitcoin reserves (instead of large reserves of a more stable currency) to repay the loan.

Well there's no need to suspect, homicide rates were dropping like a rock before 2021. Perhaps faster than has been achieved by any other social reform on record.

How is it "progressive" to allow public safety issues to disproportionately impact vulnerable populations?

I don't think "bitcoin" is progressive, bitcoin is a technology. I think the idea of trying a decentralized electronic currency is progressive. Whether they implemented it well or should have seen the problems with using it as a currency is one thing, but in the idea of trying something new sure I think it was good. I don't think it caused grave harm to try.

And I certainly can claim that their policies on crime are progressive. They are prioritizing the rights of the many law abiding people who have a fundamental human right to live unmolested and unterrorized by criminals. I think that is very progressive and quite a radical departure from the status quo. I don't think I have ever heard "human rights advocates" and UN types opine and lament the human rights of people who have to endure this type of criminal society and I think it is brave and progressive to fight for them. I absolutely understand that it has required concessions and weakening of rights in other areas, and I don't say that is a good thing, but everything is a tradeoff right? If they continued conservative status quo the tradeoff would have been other peoples rights continuing to be violated.

Just because it's not "progressive" as exactly defined by an elite ruling class in the "international community" and think-tanks and academia, and the leftist intelligentsia at large, does not mean it is not progress in social reform and improvement for the greater good. To the actual people who have to live in El Salvador, approval for Bukele's reforms are staggering. I'm sure a lot of the "experts" who assured everybody they would never work are upset about it because they have a lot of egg on their face now, but fortunately the country has a bright young progressive leader who cares about the people more than the elitists say.

The word progressive has a real meaning besides the popular figure-of-speech of calling leftist policies "progressive". Progress in anything, including politics, can move in a direction you like or in a direction you don't like. It's still progress.

Human rights of victims of these criminals were being routinely trashed and ignored before Bukele's reforms, so that's just not a trump card. His progressive reforms have significantly improved society for the greater good and has stood up for human rights that were being trampled, it is also against the conservative status quo thinking of how to deal with crime, so it very much fits the dictionary definition of progressive. Just not the elitist status quo definition of the word (ironically, they are conservative by at least some definitions).

a - gang tattoos mean gang involvement. Let's stop pretending otherwise.

b - I'm not sure what you think you're reading but that article points to the scourge of gangs and their impact on children. I only skimmed it but I couldn't see anything in that article about detaining children.

c - So?

d - Gang members in places like El Salvador victimise communities. They are a scourge. I will not accept the humanizing of them - they are parasites. I absolutely support Bukele's policies to rid the country of them. I hope he keeps going.

What would you say to the victims of these gangs?

I pasted the wrong link, corrected the above with .gov.sv domain .

I highly doubt their BTC reserve is connected to the internet.