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El Salvador may find digital-driven liquidity comes at too high a price

Other Latin American countries watch with interest as El Salvador’s bitcoin experiment gets off to a faltering start.

A new sign reads ‘exclusive Bitcoin register’ in a Starbucks store in San Salvador. Photo: Reuters

The first few days of El Salvador’s adoption of Bitcoin as legal tender have not been particularly encouraging.

A one-off incentive payment of $30-worth of BTC had been offered to each citizen and placed in new digital wallets called Chivo (cool). However, US dollar withdrawals from these Bitcoin-seeded electronic wallets were not possible as the system went offline after being plagued by technical problems.

Other Latin American countries such as Panama and Cuba, which are considering similar legal adoption of Bitcoin, will nevertheless be looking through these short-term technical issues and asking: will El Salvador’s experiment work?

The answer is almost certainly no. That is because El Salvador’s president Nayib Bukele is using the cryptocurrency to address a persistent structural problem that is the antithesis of the origins of bitcoin: US dollar scarcity.

Nayib Bukele, president of El Salvador

Bitcoin was designed to address the debasement of the US dollar – it was seen as the answer to the risk of huge money printing rendering the US currency worthless.


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