Tuesday, September 7, 2021

El Salvador launches Bitcoin experiment (Sept 7, 2021)

El Salvador became the first country in the world to adopt Bitcoin as legal tender today -- a move that has rallied the international cryptocurrency community, and raised hackles among experts in El Salvador and in the traditional financial sector. Its adoption will be closely monitored by crypto advocates, global financial institutions and governments around the world, notes the Wall Street Journal. (See also El Diario de Hoy and New York Times.)

El Salvador's President Nayib Bukele announced the move in June, which was then approved at lightning speed by the National Assembly. (See June 10's post.) Bukele has touted the adoption as an opportunity to bring more Salvadorans into the formal economy, and to make it cheaper and faster to receive remittances from abroad. Skeptics are concerned the measure could add volatility to El Salvador's fragile economy, and could be abused by criminal organizations laundering illicit funds. Economists say the government has neither the policy tools nor the financial firepower to contain a speculative attack, and the move could jeopardize El Salvador's tax revenues and foreign currency reserves.

The government will spend more than $225 million to kick off the country's Bitcoin conversion, including a $30 credit in bitcoin to those who take up Chivo, slang for “cool,” a government-run e-wallet. El Salvador's government announced 200 bitcoin purchase last night, which brings the government’s total holdings to at least 400, the equivalent of roughly $20.5 million in crypto based on this morning’s price. (Gizmodo)

The new law stipulates that all businesses must accept Bitcoin as payment. The government will also create a trust with $150 million dollars in public funds to facilitate dollar conversions, among other things. But it's not clear how many Salvadorans, only a third of whom use the internet, will actually adopt the new currency.

For observers concerned about Bukele's authoritarian slide, the move is just one more in a series of actions that consolidate presidential power, reports the Los Angeles Times. In recent days, Bukele-appointed Supreme Court justices cleared the way for him to seek reelection in 2024 (see yesterday's post), despite a constitutional ban on consecutive presidential terms, and lawmakers passed a law to remove one-third of the nation’s judges and prosecutors (see last Thursday's briefs). “The regime has very powerful control,” Noah Bullock, executive director of Cristosal, told the New York Times. “He is everything.”

Meanwhile, his supporters in the Assembly passed a law to remove one-third of the nation’s judges and prosecutors — an apparent response to Bukele’s public calls for a “purge” of the judicial branch.

Indeed, while the big story internationally is cryptocurrency, nationally the issue is erosion of democracy, notes James Bosworth at Latin America Risk Report. Though the experiment may bring about long-term benefits for El Salvador, in the short-term "worst case outcome, a corruption or human rights scandal undermines the whole project."

Bukele remains wildly popular, though less so than earlier in his mandate: 76.4 percent according to a new Institute for Public Opinion at the University of Central America poll. (El Salvador Perspectives)

More El Salvador
  • El Faro reports on the team of Venezuelan political operators who are key players in the deployment of El Salvador's bitcoin project.
News Briefs

  • Pre-dawn skirmishes have erupted between police and supporters of Brazilian President Jair Bolsonaro, as rightwing activists tried to force their way towards congress ahead of massive marches today, reports the Guardian. (See yesterday's post.)
  • The Amazon Basin is being ravaged at an accelerating rate by organized criminal groups and "legal" enterprises alike, as deforestation soars and biodiversity suffers. InSight Crime and Igarapé Institute have published the first chapters of an investigation into environmental crime in the Amazon.

  • The first instalment looks at Colombia's Amazon, where the prevalence of environmental crime – and its relevance as a source of income to some of the most powerful criminal groups in the country – is apparent. (InSight Crime)
  • Venezuela's government and opposition found common ground on two fronts, including the country's pandemic response, in a tentative step towards ending a long-standing political crisis. The signing of two "partial agreements" came after representatives of President Nicolas Maduro and opposition leader Juan Guaido held four days of talks in Mexico City mediated by Norway, reports AFP.
  • Honduras Libre opposition party, led by ousted former president Manuel Zelaya, said that if it wins November's presidential election it will seek to "readjust" the country's debt and establish diplomatic relations with China. (Reuters)
  • A Chilean Constitutional Convention delegate, and leader of the Chilean protests last year, confessed to falsely claiming he had cancer, a scandal that will likely impact the "Lista del Pueblo," reports the BBC.
  • The Spanish ultra-right Vox party registered its name and brand in Mexico, a move that will permit it to carry out a number of operations in the country, reports El País.

  • Mexico is emerging as a world leader in political gender parity, an example of the power of gender quotas, reports the Washington Post.

  • Mexico City Mayor Claudia Sheinbaum will remove a statue of Christopher Colombus, and will replace it with a likeness of an Indigenous Olmec woman, reports the BBC.
  • Ecuador aims to cut its fiscal deficit in half to around $2.4 billion in 2022 through austerity measures such as layoffs of state workers, President Guillermo Lasso announced yesterday. (Reuters
  • Nicaraguan musician Brandon Valdivia said the title of his new “Máscaras” album describes the masks used in political marches and Indigenous ceremonies, but also his own compositional practice. At times, the project makes direct references to revolutions in Nicaragua, according to the New York Times.



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