A Few Concerns From the El-Salvador Adoption

We are about a week into the passing of a law that sees Bitcoin adopted as a legal Tender in EL-Salvador. While the nation may not necessarily carry much weight or say in global proceedings, I can assure you that everyone is watching how this decision plays out in the short- medium term with keen interest.

For those of us in the crypto space, it was and remains a big and very welcome news. It further provides validation of the revolutionary potential that early cyrptocurrency adopters have long been singing. However, this move will perhaps provide a first litmus test on the financial and political angles involved on the way.

We expected detractors and a likely fallout with more influential nations as a result of this decision, and so far the opponents to this move have begun to spring up, largely from the economic side of things. A spokesperson from the World Bank had this to say about a potential collaboration with El-Salvador on how to best implement the adoption process.

"While the government did approach us for assistance on bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings."

Again, these rhetoric's which have increasingly been addressed, continue to grab sensational headlines and more than enough media attention. Unfortunately, El-Salvador isn't exactly a poster-boy country to lead a revolution as the current administration has been marred by corruption allegations, and there are serious doubts on the contribution of the country towards the clean energy end.

Perhaps no criticism has stood out more than those of a Certain Professor Steve Hanke, an economist at John Hopkins University who is known for his work as a 'currency reformer'. He warns that this move could essentially doom El-Salvador's economy, leading to economic exploitation, dollar shortages and eventual collapse.

Hanke argued that the "dollarization" of the country's economy – El Salvador uses the U.S. dollar as its currency – could lead to bitcoin holders elsewhere, including in Russia, China or Iran, "sucking up all the dollars in El Salvador like a vacuum cleaner."

This is perhaps the point that stood out most for me, even though he also mentioned issues with transaction cost which would likely not be the preferred choice by citizens in the diaspora for remittances.

He does have a point with the alarm raised over possible money laundering and exploitation, but I do not expect the country to set themselves up so easily to be exploited. While there is still a framework being built for its adoption, I expect a strong regulatory framework to that effects that encourages Bitcoin-Bitcoin transactions and minimizes the risk of foreigners and citizens taking off with the dollars in circulation. This does seem contrary to a free market, free trade, decentralized framework we are all pushing for, but at this early stages of the experiment I think pioneer countries would want to play it safe.

Interestingly, the good professor seems to agree with the notion that 'crypto is the future', just not Bitcoin. How the country goes about the implementation of this move will likely have effects on how quickly other countries follow their path.

Posted Using LeoFinance ^Beta