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Our Weekly Economic News Roundup: From Hot Tubs to Stock Tickers
September 4, 2021
How the Risks of Investing and Covid Are Similar
September 6, 2021
During a Bitcoin conference in Miami, the President of El Salvador made a surprise announcement. He said that his country would no longer use the U.S. dollar as its only national currency.
They were adding Bitcoin.
Adopting Bitcoin
Soon after the conference, El Salvador’s legislature voted to adopt Bitcoin as legal tender. With the dollar, the United States determined their monetary policy. The big plus was a stable currency. However, El Salvador could not diminish interest rates nor increase its money supply.
Adopting Bitcoin is supposed to change everything.
Starting on September 7th, everyone who signs up can get a virtual Bitcoin wallet with the equivalent of $30. However, no one is sure what will happen. Trying to stimulate economic growth, the President believes that El Salvador could become a center for Bitcoin investment (and mining with their volcanoes’ geothermal energy). He also wants to lure people away from the country’s informal cash economy. With more financial inclusion, he could boost economic growth and tax revenue.
In El Salvador, the reaction was mixed. Many people worried that getting paid in Bitcoin was a gamble. Swinging widely in value, on April 12, 2021 the price of one Bitcoin soared to $61,035.81 but by mid-July, it was down to $32,178.94. As an individual with a Bitcoin paycheck, a business with Bitcoin sales, or fiscal policy based on Bitcoin, you are riding a financial roller coaster.
Below, you can see Bitcoin’s ups and downs:
https://www.buybitcoinworldwide.com/price/
Our Bottom Line: Money
If Bitcoin has three characteristics, El Salvador’s consumers and businesses will believe it is money. As a medium of exchange, people should be willing and able to use it for trade. The commodity also needs to represent a unit of value because we have to know what it is worth. And finally, we want our money to store its value. From one year to the next, it should have approximately the same purchasing power.
El Salvador’s banks have inquired about Bitcoin ATMs that change dollars into Bitcoin and Bitcoin into dollars:
Still, I wonder if businesses will be pleased that they have to accept Bitcoin.
My sources and more: This Journal podcast was a good introduction to El Salvador’s decision. From there, Wired had more detail as did The Wire. (Please note that I have used the same definition of money in previous econlife posts.)
