Pressure stroke – Have the directors of the International Monetary Fund read – or not – the recent article in the Journal du Coin on the adoption of bitcoin (BTC) by four out of six inhabitants in El Salvador? In any case, the institution now seems to have decided to stop the adoption of bitcoin in the country by now showing its muscles. Is El Salvador a featherweight in a match against several giants of traditional finance determined to defend the hegemony of the dollar?
When the IMF raises its voice against El Salvador: monetary stability guaranteed by inflation and not by bitcoin
According to a January 25, 2022 statement, the directors of the International Monetary Fund are now urging El Salvador to remove “the legal tender status of bitcoin”. The IMF unsurprisingly justifies this overt encroachment by a foreign institution – international? – on the monetary sovereignty of one of its member countries, by evoking the classic evils attributed to bitcoin by its detractors:
“The use of bitcoin carries significant risks to financial stability, financial integrity and consumer protection, as well as the contingent fiscal liabilities associated with it”
Such assertions would therefore assume that a classical monetary policy with central banks abusing money printing – far from the famous theory of credit money – guarantees the financial stability of a country. Without being a specialist in monetary economics, it suffices to “appreciate” the pious wishes of central banks on controlling inflation in 2021 to understand what’s wrong with all the fine speeches, once the “virtuous” principles taught on school benches are confronted with the realities on the ground.
Duncan Cameron’s article “The International Monetary Fund, Monetary Reform and the Third World” published in 1979 in volume 55 (1) of Economic News, recalls that the IMF assures the “function of a loan officer”. The institution is thus investigating “the management of its clients in terms of finance” to determine whether these countries can – deserve? – or not to obtain credits.
Thus, if El Salvador continues its showdown with the IMF over bitcoin, the Bretton Woods institution will simply label El Salvador as “a bad customer”, unworthy of the loans of its partners who refer to its assessment to open or close the taps of credit – the World Bank and the other donors who form a large family with the Fund.
The January 25, 2022 Bloomberg article also reports the existence of a first blockage against El Salvador. The country had requested a $1.3 billion loan from the IMF in 2021, but negotiations are currently closed due to the institution’s concerns over bitcoin.
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Bitcoin as a (better) alternative to fiats: when the monetary decentralization of a country would only be pure utopia?
What lessons can cryptophiles learn from the pressures El Salvador is currently under?
A country cannot partially break out of the traditional monetary and financial system, hoping to have one foot in bitcoin, and another in the world of fiat currencies where the US dollar reigns supreme.
As long as a country relies on conventional schemes to finance – or rather in the hope of financing – its development, it remains under the control of traditional donors who hate bitcoin and who will obviously release the card of the famous “conditionalities” – subjective or objective – to penalize all dissidents with the greenback.
Giving bitcoin legal tender involves the realization of a significant number of strategic changes to avoid backtracking once traditional financial institutions diplomatically issue threats of a credit freeze.
The constitution of a large bitcoin stock via the purchase of its “dips”and its mining are certainly necessary, but these measures may be insufficient to carry the revolution to the end. A country that would try the experience of El Salvador must have at least a plan to finance the transition:
- How to finance adequately adjustment policies aimed at supporting the country’s growth, without having to impose a policy of budgetary austerity on the population? It will indeed be necessary to cut ties with traditional donors and accept that bitcoin price is volatile. Any potential substantial gains generated by bitcoin holdings will not occur immediately, so these returns should not be relied upon to compensate for the financial void left by the departure of donors.
- How to convert bitcoins to fiat currencies when necessary, knowing that the former technical and financial “partners” will certainly use all their weight to deprive the enemy country of fiats? This bridge between bitcoin and fiat currencies is strategic for the time being, as long as there is a cohabitation – peaceful? – necessary between a cryptocurrency and fiats.
Can El Salvador effectively reduce the scope of its bitcoin legalization law? If the executive does not find alternative solutions to finance its development, it could give in to pressure from the club of friends of the dollar. The question now is whether the crypto ecosystem in general is now strong enough to help El Salvador win a battle, a victory that would be a milestone in the history of cryptocurrencies. Otherwise, it will certainly be necessary to resolve to accept that certain beautiful forecasts for bitcoin of the Salvadoran president, Nayib Bukele, will not come true.
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