Between the fiery statements of economist Max Keiser and the live appearance of a prominent member of the DOGE Army on stage, the International Bitcoin 2021 Summit in Miami is probably finally having its real historic moment. In an official communication, El Salvador’s President Nayib Bukele announced that Bitcoin will soon become the official currency in his country, alongside the dollar. An unprecedented development that will have the support of several major players in the sector such as Strike and Blockstream.
El Salvador and the dollar
Before formally mentioning the news of the day, it is worth remembering that El Salvador, a small Latin American nation with a population of 6.5 million, uses the US dollar as its currency.
Although this monetary situation may come as a surprise, it has lasted since 2001, when the greenback replaced the colón, which had been in use since 1892. El Salvador is far from being the only country in Central and South America to have made the shift to dollarization, as it has also been done in Panama (for a long time) and Argentina.
Each time, it is the argument of protection against inflation that has been put forward by successive governments, faced with a collapse of the exchange rates of local currencies, accompanied by a massive impoverishment of the population.
While these monetary adjustments are, with the benefit of hindsight, judged to have been generally unsuccessful, they were accompanied by a liberalization of the national economic sectors and a mess of privatizations.
Thus, despite the 20-year reign of the dollar God in El Salvador, the situation in this small country, the most densely populated in the region, remains worrying: subsistence economy, great dependence on the diaspora and foreign aid, high unemployment… all this against the backdrop of a lack of economic prospects and a turbulent recent political history.
And in this unpleasant picture, a frightening macro-economic figure: 70% of a population, often young, unbanked.
The national economic situation is therefore not very encouraging, but it also presents a context that is potentially conducive to experimentation and innovation. And it is precisely in this dynamic that the young president of El Salvador, Nayib Bukele, wishes to inscribe himself with a declaration that will now remain engraved in modern economic history: the use of Bitcoin as a legal tender within a sovereign nation.
El Salvador: The First Bitcoin Nation?
The news came at the Bitcoin 2021 Summit in Miami. The young and dynamic president (he is 39 years old and known for his eternal backwards cap), leader of the reformist party New Ideas, intervened during the weekend to announce on video the big news, namely that he was going to present in the next few days a bill to the National Congress in order to make Bitcoin a legal currency, alongside the dollar. Since the Congress is in favor of the News Ideas party, the validation of the proposal should be a formality.
In addition to the historical dimension of the thing, which will make El Salvador the first sovereign nation to give monetary credentials to the creation of Satoshi Nakamoto 13 years after its inception, the president said he would be surrounded by leaders in the sector, such as the payment application via Lightning Network Strike, or the giant Blockstream.
“What is truly transformative here is that bitcoin is both the largest reserve asset ever created and a superior monetary network. Holding bitcoins helps protect developing economies from the potential shocks of fiat currency inflation.”Jack Mallers, founder of Strike
Everyone in this equation fully understood that the opportunity was historically unprecedented.
For President Bukele, it is indeed an opportunity to position himself as an economic reformer, able to stand on his own two feet from the dollar. In this sense, the Bitcoin payment network could provide simplified access to financial solutions for millions of people left on the road to economic progress.
Moreover, the President of El Salvador sees the anti-inflation properties of Bitcoin, in a world engaged in an increasingly crazy inflationary spiral. An open door to the integration of bitcoins as assets to national finances.
For companies in the ecosystem, such as Blockstream and Strike, the opportunity is just as great: to have a country and a complete economic system at their disposal, offering a real blank page to demonstrate the efficiency of the means of payment and the Bitcoin network on a large scale. This is a historic event that will be closely watched around the world.
While some may quibble with the small nation of El Salvador’s modesty and meager economic or geopolitical weight, many observers agree that El Salvador could be the first domino to fall, quickly dragging down neighboring nations facing the same intractable economic equations. Once this mechanism is set in motion, the “bitcoinization” movement of the world could definitely reach a critical point of no return.