Economist: Switch to Bitcoin Could Derail El Salvador’s Economy

The use of Bitcoin as legal tender could completely destroy El Salvador’s economy. This was stated by Steve Hanke, a professor of applied economics at Johns Hopkins University, in an interview with Kitco.

Residents are not expected to use the cryptocurrency for everyday transactions, but the authorities’ decision would allow foreign holders of Bitcoin to convert the asset into dollars, the official currency, according to the former chief economist in the Reagan administration.

“This could lead to a total collapse of the economy, because all of El Salvador’s dollars could be sucked out, like by a vacuum cleaner, and there would be no money left in the country. They have no national currency,” Hanke said.

Most citizens rely on cash, so, in the economist’s view, it is doubtful that the cryptocurrency will gain traction as a means of payment.

Cross-border Bitcoin remittances, the professor contends, are pointless, since they would have to be converted to the U.S. dollar at a high cost.

Hanke described lawmakers who supported President Nayib Bukele’s proposal as “stupid” and suggested that dark forces in the country behind the move wish to use Bitcoin to seize dollars.

Earlier, JPMorgan analysts doubted that recognizing El Salvador’s first cryptocurrency as a legal means of settlement would bring tangible economic benefits to the country. At the same time, bank specialists noted that such a decision could jeopardize talks with IMF.

A representative of the institution itself has already pointed out that the use of cryptocurrency could bring a range of risks and regulatory issues.

ForkLog interviewed experts have reached the view that adopting cryptocurrency could as much stimulate investment inflows as drive capital outflows.

The Central American Bank for Economic Integration (CABEI) said that it will support El Salvador in implementing Bitcoin and will create a technical group for this purpose.

As noted, Bukele asked the state energy company to organise sites for cryptocurrency mining using the geothermal energy of the volcanoes.

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