Not all international institutions like the fact that El Salvador is introducing Bitcoin as its national currency. What are the reasons behind their criticism and why organizations like IMF or BIS tend to slow down innovation instead of promoting it.
When El Salvador declared Bitcoin its official currency last week, not only were Bitcoin enthusiasts amazed, but also well-known institutions such as the European Central Bank (ECB), the Bank for International Settlements (BIS), the World Bank and the International Monetary Fund (IMF) . There is no evidence that the financial elite were prepared for this moment. But that is precisely what reveals a fundamental problem in our national, supra and international institutions.
BIS: No explanation whatsoever
Not surprising were the reactions of the same institute representatives, who classified the supposedly irresponsible behavior of El Salvador in an almost doctrinal way. Instead of justifying, one simply stated. So it was said by Benoît Cœuré, Head of the BIS Innovation Hub – also known as the Bank of Central Banks – that although it is an exciting experiment, the BIS does not recognize Bitcoin as a currency. In his opinion, Bitcoin should be regulated like a speculative asset.
It is absolutely understandable that Cœuré takes this view. Nobody can be expected to promote something that diminishes their own profession. His reference to regulation shows above all one concern: that the taxation of Bitcoin could be eliminated if it is accepted as a currency or foreign currency and a new crypto tax haven is created in El Salvador. So you don’t necessarily want to regulate Bitcoin like a speculative asset because you think it is so speculative (which is definitely the case), but rather to bring about disadvantages for the cryptocurrency. The statements show the fear of recognition and the associated status that Bitcoin would get if it were to go to El Salvador.
Interpretation sovereignty at any price
In the struggle for the sovereignty of interpretation, similar statements can also be found among other officials. The statement by ECB boss Christine Lagarde from January of this year, in which she described Bitcoin as “funny business”, is also unforgettable. had associated:
It is a highly speculative asset that has caused some fun deals and some interesting and totally objectionable money laundering activity.
Christine Lagarde, President of the ECB
Regarding El Salvador, Lagarde said that in the end it did not really interest her or that this would have no influence on ECB policy. Her former IMF colleague Gerry Rice – Christine Lagarde was IMF Director before her time at the ECB – also expressedthat the move of El Salvador is causing him “legal and financial worries”. But here too, as with the BIS, there are no really concrete objections.
The World Bank is also giving El Salvador the cold shoulder. So the small country asked the institution for cooperation and support. The answer meanwhile turned out to be clear:
The government asked us for help with Bitcoin, but given the environmental and transparency deficiencies, the World Bank cannot support it.
World Bank statement
What risk do you actually mean?
With statements like this one might be inclined to ask which risks are meant for which actor. After all, El Salvador no longer has any currency of its own that this experiment could ruin it. Since 2001, the US dollar has been used as a substitute. The risk in El Salvador should therefore be manageable. Rather, Cœuré, Lagarde and Rice seem to be talking about a completely different risk: their very own.
As a sovereign state, El Salvador calls into question an existing, maximally institutionalized system. The risk that this questioning of established orders, the exploration of new paths and the “risk of contagion” brings to other countries, is now fueling the fear of the world’s major financial institutions.
The same mistake in reasoning
The reaction of the institutions mentioned also shows that one is hiding one’s own laziness for innovation. In a conservative sense one tries to preserve the traditional instead of allowing the new. Token infrastructures are still partially perceived as a threat or at least prevented by certain interest groups. The following argument comes up again and again: programmable currencies are currently not even necessary. After all, our current economy is hardly able to map the decentralized complexity. Autonomous cars do not drive through the streets, nor do parcel drones fly through the air. The 5G mobile communications standard, which creates new dimensions in terms of interaction and transaction options, is still a long time coming.
This leads to the mistake of thinking that one does not prepare for the future and instead rather optimizes an existing system, true to the motto: “It works just fine like that”. This can be seen, among other things, at the Deutsche Bundesbank. It was found there that real-time settlement is also possible with the existing settlement standards, so that for the time being there is no need to introduce digital central bank money (CBDC). As correct as the theoretical derivations may be for the moment, they are anything but future-oriented.
Deposit money and internal combustion engines
Our existing financial infrastructures are just as important as the gasoline engine in cars. Instead of building cars that use less and less fuel, the future belongs to the automobile manufacturers who are best able to master the transition to electromobility. The same applies to money, securities and digital identity. The more promising opportunities come from those who were the first to recognize what will become the new standard. Nobody doubts that tokens will become the new standard for the embodiment of value, not even the institutions mentioned. It may therefore be all the more surprising that your actions are not congruent with this finding.
Demand without afford
Instead of encouraging El Salvador and offering help, the country is being discredited. One secretly hopes that the project will fail, only to have a daunting example afterwards. The fact that one now punishes crypto enthusiasts rather than promoting them shows that one does not want to admit one’s own clumsiness.
At this point, of course, one can raise the objection that it is not the task of states to develop technical innovations. Maybe so. But should this also be followed by the consequence that non-governmental innovations should instead be allowed to go ahead instead of obstacles being put in their way?
IMF and World Bank versus Bitcoin: neutrality impossible
It would be welcomed if the aforementioned international institutions were more open and neutral towards El Salvador’s advance. Instead, aid has to be organized regionally. So come on now support from the Latin American development bank CABEI, which will assist El Salvador with the implementation.
It is not surprising that no help can be expected from the IMF or the World Bank in the future either. After all, these are the successor organizations to the Bretton Woods Agreement, ergo the standard that set the US dollar as the reserve currency in 1944.