Monetary Policy.
Can someone explain how a country plans to implement a monetary policy (e.g. inject new currency during a recession to fund expansion) when they don’t control their national currency (Bitcoin).
Can someone explain how a country plans to implement a monetary policy (e.g. inject new currency during a recession to fund expansion) when they don’t control their national currency (Bitcoin).
BTW Panama has been on USD since 1903.
I’d argue that while it remains outside their control, it does change things substantially. USD has effective tools to impact monetary policy; using USD puts El Salvador at the mercy of the US. Bitcoin does NOT have effective tools to impact monetary policy - that’s part of the reason for its existence. That puts El Salvador at the mercy of the Bitcoin network as a whole.
Moving from USD to BTC would be equivalent to saying “it’s better to have no monetary policy than to have a monetary policy controlled by the US”. That’s not what they’re doing here - they’re adding BTC as an option. Doing that means that they have the ability to react (relatively) quickly if they ever reach the point where they no longer trust the US to perform that function.
My guess is ppl will quickly cash out to dollars. But how will the dollars get back to the local exchanges unless people are buying bitcoin there?
This seems like a disaster in the making.
Scenario: I want to send my mom $1,000. That would cost me $200 with a remittance, but it's only $20 with Bitcoin. Success! I send her the $9980. Now my mom has $9980 equivalent in Bitcoin. So she goes to the store. The local grocery store has to accept Bitcoin, so she buys up stuff. Success!
Suddenly the grocery store needs to pay its bills. It pays its suppliers in Bitcoin. Success!
The suppliers' suppliers, who are importing many of these goods from abroad, say FUCK NO and don't accept Bitcoin, they need hard cash. Or perhaps the farmers who grow the crops need to purchase fertilizer from abroad, same story. Okay, the suppliers need to convert their Bitcoin to dollars, piece of cake, right? Suddenly there's a problem: Bitcoin is converted to dollars only when dollars are going to be sent out of the country, and suddenly all of those Bitcoin transactions need to be backed up by USD. USD which never flowed into the country in the first place, because I sent BTC and not USD. Suddenly USD is much more scarce than BTC. That sinks the exchange rate.
To me, it seems like El Salvador should have created a MoneyGram competitor and left it at that. They could remove/reduce commission without all the rest of the risks.
Does El Salvador need a blockchain or crypto? No, of course not. They need inexpensive facilitation of domestic financial services and cross border remittance to reduce currency import drag.
Instead, inept politicians (for various reasons out of scope for this thread) are going to cause a lot of suffering, but it will be helpful to have a case study to point to in order to demonstrate the nation state policy failure. This is worse than being reliant on another country's monetary policy and central bank. You're tying your economy to a speculative asset with few governance mechanisms. C'est la vie.
[1] https://www.vocalink.com/payment-processing/real-time-paymen...
Monetary sovereignty is a spectrum, with countries having high degrees of MS and low degrees of MS. Since El Salvador pegs its currency to the US dollar it has a low degree of monetary sovereignty.
Having a low degree of monetary sovereignty is the reason countries like Greece ran into so much trouble after the 2008 financial crisis. Greece doesn't control its currency. Where as the US does and it did much better.
Do people use regulated money transfer services (Western Union) or do they use informal trust based money transfer services?
https://en.wikipedia.org/wiki/Informal_value_transfer_system
that's a relatively new concept that hasn't exactly worked out so well for anyone that's ever done it
Similarly, there is not really a reason that interest rates should be fixed by a central banks. Markets can do that as well.