“Another change makes using bitcoin entirely voluntary. (Previously, the law mandated that businesses accept bitcoin for any goods or services they provided.) Additionally, bitcoin can no longer be used to pay taxes or settle government debts.”
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.
Presumably they require their loan to be repaid in fiat because of their internal charter. If Bitcoin adoption eventually removes El Salvador's ability to issue fiat, their loan can't be repaid.
That's not really how that works. IMF can demand their loan be repaid in whatever currency they want. Its totally normal for international loans to be denominated in a currency other than the recipient's legal tender, particularly for high risk countries (although that is usually bad for the recipient)
They don't want Bitcoin in exchange. Seems entirely reasonable to me given how much the value of cryptocurrency fluctuates with low predictability. They could get paid in it one day and lose half the value the next.
This is why otc tradfi crypto futures are needed. You can buy a train car full of corn a year out trivially on a liquid futures market, regardless if corn prices fluctuate wildly you will pay what was agreed. Listing BTC derivatives would solve the predictability for fixed loan terms.
Ecuador mints their own centavo coins, but they are not legal tender outside of Ecuador. They've never released their own $1 coin into general circulation – their ubiquitous Sacagawea dollars are minted in the US.
Hmm.. I didn't know that. Which makes the demand purely political then. I recall IMF making the same demand from an island country a few years ago too.
The IMF feels bitcoin is a risky asset and doesn’t want to be a part of that gamble when making its loan. The IMF has a history of making lots of conditions they feel minimize risk.
To me it looks more like my bank mandating I carry certain kinds of insurance in the terms of my mortgage than a political bias, but I am not an expert.
I'd much prefer a small amount of deflation to the massive inflation that USD is currently undergoing. And furthermore I think our economic system which encourages young people to take on debt in order to have niceties such as housing and transportation is massively exploitative and unsustainable.
High inflation effectively front loaded loans that had fixed repayments (such as mortgage repayments) and the high interest rates that went with them (they move togeter - its called the Fisher Effect - https://moneyterms.co.uk/fisher-effect/ ) meant lenders were willing to lend a much lower multiple or income.
In most places (and definitely in the UK) house prices were much lower relative to incomes when we had 10% annual inflation.
> And furthermore I think our economic system which encourages young people to take on debt in order to have niceties such as housing and transportation is massively exploitative and unsustainable.
Deflation will kill that. Your loan will cost more over time instead of less. The assumption with inflation is loans will follow it. With deflation and loans not following then people who bought into the system might be well off but those who are not yet in are worse. Same thing with inflation and loans not following as is happening now.
From my (maybe naive) understanding of current economic theory, it's that a small amount of inflation is what grows an economy. And an important part of that is unpredictable levels of inflation/deflation.
So I'd assume a small amount of predictable deflation would shrink an economy.
It is structurally disinflationary, not just deflationary. Bitcoin is still emitted every ~10 minutes with currently an average inflation rate just under 1% of its supply per year.
The "massive risk" the IMF sees is that without central banks or even less influential central banks the IMF existence would be threatened.
If an economy grows at 2% and the supply grows by 1% it is in permanent deflation. For a country like el salvador with much higher growth, the deflation can easily be much higher
You were discussing "structural" inflation, referring to Bitcoin as a system, not relative to inflation of goods and services in a specific economy. These are two distinct economic phenomena that can influence each other but should not be conflated.
Bitcoin's supply doesn't become inflationary or deflationary "structurally" based on the growth of x or y economies. The word inflation is used for both concepts but, structurally, Bitcoin will remain an inflationary system until around year 2140... then block subsidies are going to to stop, no new bitcoins are going to be emitted and then you (or more likely our descendants) can call Bitcoin a structurally deflationary money. Hence the use of the word disinflationary, it currently is in the process of becoming a deflationary system by progressively reducing the inflation of its own money supply (through "halvings" approx. every 4 years).
Imagine you have 6,050 bitcoins but they didn't work out for you the way that you hoped. The most reasonable thing to do is to still advertise a bullish position because otherwise you are devaluing your own asset.
There is a strong sentiment around bitcoin in El Salvador and it can make them money; but the experiment around it being a legal tender, well, failed.
Investment is not legal tender, its moved from a functional role to a high risk investment strategy, would be my take. They're different buckets of money/value and expectations.
> Salvadorans, with the exception of a few, never embraced Bukele’s initiative, who enjoys enormous popularity for his war against gangs, which dropped homicides to historic lows in El Salvador. A recent survey by the Central American University (UCA) revealed that 92% of Salvadorans did not use bitcoin in their transactions in 2024.
I would say this points to an actual failed experiment, if true.
8% of people used it at least one time in an entire year.
In a place where people (who have on average very low incomes) were given $30 worth of bitcoin by their government just for signing up to a wallet app, so a very, very large proportion of the populous (compared to any other country on Earth) already had an app and wallet set up and ready to go. That's not a lot. That's a clear indication that the experiment simply didn't work.
This "everything's going great as long as you squint hard enough" stuff is why people don't give cryptocurrency proponents the time of day. At some point admitting you've lost actually better preserves your ability to be heard at the next debate.
It's no longer legal tender; merchants will no longer be forced to accept it. That's the key point; if the state wants to indulge in speculation, that's its business (though you'd question whether a state which needs to take IMF loans, which are kind of a last resort, should really be engaging in this...)
That's probably why OP chose a highly editorialized "Tico Times" article as the source for this. What's even funnier is it's a Costa Rican newspaper. So one Central American country publishes an article smearing another Central American country, and then HN sees the bias-confirming headline and tries to glean some economic lesson from it. Classic.
--https://reason.com/2025/02/03/el-salvador-walks-back-its-bit...
Sounds pretty failed to me.