Canada and El Salvador are very different countries that have something in common: two politicians convinced that cryptocurrencies, especially bitcoin, are a way to free people from the constraints of the financial system.
Posted yesterday at 11:00 a.m.
The one who aspires to the post of Prime Minister of Canada, Pierre Poilievre, is very upset against the Bank of Canada and monetary policy in general. He promises, if he leads the country, to generalize the use of bitcoin and other cryptocurrencies in all transactions in order to protect Canadians from the inflation created, he says, by massive purchases of federal government bonds by the central bank to support the economy during the pandemic.
If that happens, it would be the first time that a country has put its central bank in competition with another official financial system. Despite their popularity, cryptocurrencies are under the scrutiny of a growing number of governments, who want to regulate their use. Countries like China have banned them outright and others have created their own digital currency with blockchain technology.
El Salvador is so far the only country to have made bitcoin its national currency. Its president, Nayib Bukele, is betting big on the future of bitcoin.
He wants to create a city from scratch to accommodate bitcoin miners in a community where there would be no taxes or taxes. The Salvadoran government wants to issue US$1 billion in bitcoin bonds to build its Bitcoin City, a fully-serviced town near a volcano that would supply it with geothermal energy because bitcoin mining requires so much energy. energy.
El Salvador abandoned its national currency, the colón, in 2001 for the US dollar. It no longer controls any monetary policy tool. By adopting bitcoin as a national currency, the government’s argument to convince the population was first of all economic. Bitcoin allows expatriates to transfer money free of charge to their families back home, which is a very important source of income for Salvadorans.
Still young experience
The Salvadoran experience is still too young, a little over a year, to draw conclusions. But transactions in bitcoins are still marginal in this country of 6.5 million inhabitants, poor and very indebted, report local media. This does not prevent the president from continuing his ambitious bet to make his country the world capital of bitcoin. But he risks coming up against harsh reality.
That of the International Monetary Fund (IMF), to begin with. El Salvador benefits from international aid and needs the support of the IMF to continue to operate and honor its obligations. However, the IMF has squarely asked the Salvadoran government to backtrack and withdraw the status of national currency granted to bitcoin.
The benefits of bitcoin for the population, i.e. access to a free exchange system, pale in comparison to the risks associated with cryptocurrencies, explains the IMF in a recent report on El Salvador.
Bitcoin and other cryptocurrencies are a parallel channel that allows all kinds of transactions to be carried out in complete anonymity. They can be used to finance all sorts of activities, including tax evasion and terrorism, the IMF points out.
But for the people of El Salvador, the biggest risk is the volatility of bitcoin, which can make someone rich and ruin them in a very short period of time. In the event of a rapid fall in the value of bitcoin, the government would have to take on more debt to ensure the convertibility of bitcoin into US dollars, the IMF warns.
In sum, El Salvador may have the opportunity to get rich with bitcoin, but it may just as well go bankrupt.
Over the past year, bitcoin has fallen from a high of US$68,789 to a low of $28,893, and was worth around US$46,200 on Friday. To protect against inflation, this is certainly not ideal. Nor is it a way to regain control of the currency, as the Conservative Party of Canada leadership contender puts it, since bitcoin fluctuates more than all currencies and for all sorts of reasons most often. obscure.
Mr. Poilievre says he wants to make Canada “the freest country on Earth” with cryptocurrencies. In El Salvador, Mr. Bukule wants to make his own a bitcoin paradise. Canada and El Salvador, same fight? We will have seen it all.
- 9 countries
- This is the number of central banks that have created their own digital currency with blockchain technology. Pilot projects are underway in 14 countries and several others, including Canada, are exploring this possibility.
source: ATLANTIC COUNCIL
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The economic planet | El Salvador and Canada, same fight?
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