El Salvador has made headlines in the past week for two things, the decision made by the country's supreme court to allow presidents to run for a second consecutive term, and the addition of bitcoin as its currency/legal tender. The country is known for its unstable government and high homicide rates since its civil war and many citizens have been looking for a solution. President Nayib Bukele has become extremely popular since he has come into office in 2019 for lowering crime rates across the country, building new infrastructure, and providing food stamps. But his astronomical rise to power has not been without questionable political moves in the face of democracy. After gaining a super-majority in the legislature in february, five supreme court judges were replaced with some of his sympathizers to help allow him to change the constitution to have the ability to run for a second consecutive term, which he is now looking to do in 2024. The question then becomes, what will happen now, when Mr. Bukele has the judiciary system on his side? The current situation looks like it is transitioning to an authoritarian rule, something that El Salvador has been struggling to avoid.
The switch to bitcoin as legal tender has also caused many questions on how the country will change. Having a source of national currency as volatile as bitcoin has raised many eyebrows and has the world looking at El Salvador. When goods and services are tied down to a volatile currency, the biggest question becomes, how will this effect the market? The reason for the addition of bitcoin is due to almost 20% of El Salvador's GDP coming from overseas, where transaction costs are expensive. To counteract this, switching to bitcoin would lower these fees and allow the transferring of money to become much easier. But many citizens in the country are worried, as almost half of the people do not have internet access, and are suffering from problems internally. Is the switch to bitcoin a good decision? Is the switch untimely or ignoring other issues within the country? So many questions arise from both an economic and political standpoint when it comes to El Salvador.
Sources:
https://www.economist.com/the-americas/2021/09/11/el-salvadors-bitcoin-bro-president-is-beloved-and-dangerous
https://www.reuters.com/business/finance/el-salvador-leads-world-into-cryptocurrency-bitcoin-legal-tender-2021-09-07/
https://www.newscientist.com/article/2289763-why-has-el-salvador-officially-adopted-bitcoin-as-its-currency/
1 comment:
I find this move to a cryptocurrency economy very interesting. It will be interesting to see how well it does given the country is already struggling with countless other problems. I wonder if this works out well for a smaller economy like El Salvador, a bigger economy more relative to the United States, tries switching to crypto as well. Personally I think the volatility of cryptos raises major concerns on how it effects prices and other things of that nature in the economy.
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