Bitcoin, El Salvador, And…The Eurodollar’s Ghost

The Salvadoran colón is still technically legal tender in El Salvador. The country’s government under President Francisco Flores had passed the Law of Monetary Integration in 2000, taking effect on January 1, 2001. This legalization of the US dollar for domestic circulation didn’t specifically remove the colón from common purchases or prohibit its use; the country’s Central Reserve Bank just stopped printing any more denominated paper notes and ceased minting any more of its coins.

Why not switch to the dollar? During the decade of the nineties, in particular, dollarization in one form or another was all the rage across emerging and hopeful market economies like El Salvador’s. After all, there were plenty of them (eurodollars, but still). Unlike many of these local currencies, it wasn’t about the exchange value, instead the more succinct functions of any global reserve currency meaning “liquidity” and reach.

The entire point of a global reserve currency is to be a medium, an intermediary by which different and often very disparate nations spread all over the world (in an increasingly globalized economic system) can effectively, efficiently, and fluidly transact with one another. For this to happen, that medium or middle currency must be widely available to everyone and in dependable open supply.

That was eurodollar, not dollar.

In early June 2021, El Salvador pledged to switch up its monetary arrangement all over again. The dollar’s not being replaced like the colón once was, at least not intentionally. The foreign currency is now planned to be supplemented by Bitcoin. El Salvador aims, later in the fall, to become the world’s first sovereign entity to embrace this form of cryptocurrency as equally legal tender.

This has many officials and “experts” stumped. Why? Why now?

Even hardcore Bitcoin maximalists are at somewhat of a loss to explain it. On the one hand, this is exactly what they’ve been preaching ever since the pseudonymous Satoshi Nakamoto laid down the currency’s genesis block way back on January 3, 2009. Bitcoin, they say, is an actual and useful currency so here’s a country willing to put their form of modern money where its confusing mouth is.

But – and here’s the hang up – Bitcoin is supposed to supplant the dollar because the latter has been judged by its most hardcore proponents as worthless; the Fed and its obscene levels of “money printing” and all that. Not, in other words, what El Salvador is up to.

The country isn’t attempting to defend itself from the eurodollar system’s imminent demise. On the contrary, officials from El Salvador had previously, in early March 2021, just three months before this Bitcoin gambit, opened discussions with the IMF for a further $1 billion infusion – our first clue about what’s actually happening here.

In a very important sense, digital currencies like Bitcoin aren’t anything new. The technology, nomenclature, and the way it works certainly are, but the concept is centuries old. Ledger money.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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Andrew Armstrong 2 months ago Member's comment

Superb article. Thank you.