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Probably not unrelated: US report: Allies of El Salvador's president deemed corrupt (last month) https://apnews.com/article/latin-america-el-salvador-1d089ae...
Though not mentioned in the article, the President of El Salvadore apparently also mentioned that the country plans to hold Bitcoin as a reserve asset.
As someone who readily admits to not fully knowing what legal tender entails, I have a question for the optimists: As I understand it, legal tender status forces creditors to accept bitcoin as debt repayment. Given the volatility of bitcoin, wouldn't this impact risk assessment of loans? Being obligated to accept a high volatility asset as a repayment sounds like a nightmare for creditors. Wouldn't interest rates ris…
there will likely be a small fee to them for the conversion of Bitcoin to say, USD, but I imagine it would be similar to accepting credit cards for payment? and so it would be worked into the prices.
As someone who readily admits to not fully knowing what legal tender entails, I have a question for the optimists: As I understand it, legal tender status forces creditors to accept bitcoin as debt repayment. Given the volatility of bitcoin, wouldn't this impact risk assessment of loans? Being obligated to accept a high volatility asset as a repayment sounds like a nightmare for creditors. Wouldn't interest rates ris…
Accepting it as legal tender doesn't mean it is what the loans are denominated in. Nobody sane would denominate loans in BitCoin. (There are loans denominated in BitCoin. The obvious syllogism applies.)
And this is significant: debtors could repay their debts when bitcoins look like they will decrease in value with respect to the currency of denomination with an intent to harm the debt owner.
In the 19th century, there were dual currency systems with fluctuating exchange rates. I don't know anything about why they failed, just that they failed...
Though not mentioned in the article, the President of El Salvadore apparently also mentioned that the country plans to hold Bitcoin as a reserve asset.
Happen to know whether ElSalv did covertly did most of their purchasing before announcing this? Or have they not purchased btc just yet?
Earlier quoted context omitted.
It wouldn't be surprising if the US government were to take actions against governments that were moving away from the dollar, whether as legal tender, as foreign reserves, or for other purposes like pricing oil, but it doesn't seem likely that the USG knew about this move a month in advance. Are you suggesting that the Salvadorean president is attempting to retaliate for the report by dedollarizing?
Nothing to do with retaliation. They just want to protect their assets from being seized by the US government.
It seems to me more likely that the figures in the article amply explain the move:
> roughly 70% of people do not have bank accounts or credit cards. Remittances, or the money sent home by migrants, account for more than 20% of El Salvador's gross domestic product. Incumbent services can charge 10% or more in fees for those international transfers, which can sometimes take days to arrive and that sometimes require a physical pick-up.
I mean, living in Latin America, I'm well aware that the US has a long history of invading and overthrowing Latin American governments, I'm just not sure how Bitcoin reserves would protect against that.
It'll probably be the smaller countries first where they don't have great currencies to begin with, so they'll always have to use a foreign one, either USD or an alternative. With USD, they are at the mercy of USG and will get pushed around by them. With Bitcoin, the network itself is kept safe with all the energy and mathematical properties, but the price is very volatile at the moment, though volatility will decrease with increasing market caps.
This will be a very interesting experiment to watch.
I wonder why a country would choose Bitcoin as legal tender when better, faster, more environmentally friendly cryptos exist (ones which can feasibly be used to transact money in real-time, for instance).
Mostly adoption purposes. Bitcoin, for better or worse, is now a globally recognized asset (if not official recognized). Sure they could adopt a coin like Ripple or Doge, but that would almost certainly permanently sabotage the market for both respective coins. While I agree that this is a bad idea, basing it on a larger currency does have some considerable economic benefits.
Certainly if I was selling something I'd denominate it in something relative stable and then change Bitcoin asking price to match the exchange rate to that stable currency. Since the currency there is the USD... Yeah, I'd still be pricing my goods and services in USD.