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Because they have both Dollar and Bitcoin as legal tender, the result is unclear. In theory, because USD is still cheaper (if Bitcoin is supplied constrained as

by liuliu 5y ago

Because they have both Dollar and Bitcoin as legal tender, the result is unclear. In theory, because USD is still cheaper (if Bitcoin is supplied constrained as it is promised), people will trade with USD and hoard Bitcoin. However, when crossing borders, USD is more cumbersome to move around, that may deter people to import products with "cheap" USD. It would be very interesting to observe, whether they will eventually move to Bitcoin only (if the bull market keeps going) based on Economics history (because domestic market will hoard Bitcoin, causing outflow of USD). And if that happens, would be interesting to observe the other factors (wage and services) deflate as the theory predicts.

JumpCrisscross 5y ago
Gresham’s law [1] would (EDIT: loosely) predict Bitcoin gets hoarded while U.S. dollars trade. [1] https://en.m.wikipedia.org/wiki/Gresham%27s_law https://en.m.wikipedia.org/wiki/Gresham%27s_law
- thehappypm 5y ago
  You're joking right? The "bad currency" here is clearly Bitcoin, which cannot actually be used to buy things in 99.999% of global market situations. If El Salvadorian businesses want to buy computers, trucks, fertilizer, food, whatever, BTC is meaningless and will need to get converted to USD.
  - imtringued 5y ago
    Salvadorians in USA convert their USD in BTC and Salvadorians in El Salvador convert it back to USD. They aren't trying to invest or hold onto Bitcoin.
    - thehappypm 5y ago
      You’re agreeing with me. You wouldn’t want to hold onto Bitcoin because it’s the inferior currency option.
- StingyJelly 5y ago
  I'm not sure that Gresham’s law would strictly apply since people can instantly exchange one for the other. Definitely an interesting situation to keep an eye on.
  - JumpCrisscross 5y ago
    > not sure that Gresham’s law would strictly apply You're correct, it's a loose analogy. > people can instantly exchange one for the other "El Salvadorans without a bank account (70% of the population) can only convert bitcoin to greenbacks at a bitcoin ATM. At present, El Salvador only has two active bitcoin ATMs" [1]. [1] https://sites.krieger.jhu.edu/iae/files/2021/06/Bukeles-Bitcoin-Blunder-Final.pdf https://sites.krieger.jhu.edu/iae/files/2021/06/Bukeles-Bitc...
OscarCunningham 5y ago
In what sense do you mean that the dollar is cheaper than bitcoin? Surely it doesn't mean anything to say that one currency is cheaper than another, since the exchange rate is what it is. I would predict that people prefer dollars to bitcoins, since they are less volatile.
- imtringued 5y ago
  The dollar is getting cheaper every year through inflation. Hoarding USD is impossible over the long term. Meanwhile Bitcoin has an entire community centered around hoarding. The price they charge you keeps going up. The amount they spend keeps going down.
  - JumpCrisscross 5y ago
    > dollar is getting cheaper every year through inflation. Hoarding USD is impossible over the long term. The U.S. dollar is a transactional currency. It's very good at that. If you're holding value over longer terms and want cash-like liquidity and security, you hold Treasuries, which are inflation resistant.
Ancapistani 5y ago
> if Bitcoin is supplied constrained as it is promised To my knowledge, this could only be changed through unanimous consensus across the entire Bitcoin network. That’s possible, but practically speaking this would nearly certainly result in a fork. Is there another way that the 21m Bitcoin constraint could be broken that I’m unaware of?
lottin 5y ago
> interesting to observe the other factors (wage and services) deflate as the theory predicts The theory doesn't predict deflation. Any trade imbalance must be balanced out with an equivalent flow of money in the opposite direction. This means the quantity of money, and by extension the price level, will change according to the balance of trade. Therefore the theory predicts inflation in countries that have a trade surplus, and deflation in those that have trade deficit.

by liuliu 5y ago

JumpCrisscross 5y ago

Gresham’s law [1] would (EDIT: loosely) predict Bitcoin gets hoarded while U.S. dollars trade. [1] https://en.m.wikipedia.org/wiki/Gresham%27s_law https://en.m.wikipedia.org/wiki/Gresham%27s_law

thehappypm 5y ago
You're joking right? The "bad currency" here is clearly Bitcoin, which cannot actually be used to buy things in 99.999% of global market situations. If El Salvadorian businesses want to buy computers, trucks, fertilizer, food, whatever, BTC is meaningless and will need to get converted to USD.
- imtringued 5y ago
  Salvadorians in USA convert their USD in BTC and Salvadorians in El Salvador convert it back to USD. They aren't trying to invest or hold onto Bitcoin.
  - thehappypm 5y ago
    You’re agreeing with me. You wouldn’t want to hold onto Bitcoin because it’s the inferior currency option.
StingyJelly 5y ago
I'm not sure that Gresham’s law would strictly apply since people can instantly exchange one for the other. Definitely an interesting situation to keep an eye on.
- JumpCrisscross 5y ago
  > not sure that Gresham’s law would strictly apply You're correct, it's a loose analogy. > people can instantly exchange one for the other "El Salvadorans without a bank account (70% of the population) can only convert bitcoin to greenbacks at a bitcoin ATM. At present, El Salvador only has two active bitcoin ATMs" [1]. [1] https://sites.krieger.jhu.edu/iae/files/2021/06/Bukeles-Bitcoin-Blunder-Final.pdf https://sites.krieger.jhu.edu/iae/files/2021/06/Bukeles-Bitc...

OscarCunningham 5y ago

In what sense do you mean that the dollar is cheaper than bitcoin? Surely it doesn't mean anything to say that one currency is cheaper than another, since the exchange rate is what it is. I would predict that people prefer dollars to bitcoins, since they are less volatile.

imtringued 5y ago
The dollar is getting cheaper every year through inflation. Hoarding USD is impossible over the long term. Meanwhile Bitcoin has an entire community centered around hoarding. The price they charge you keeps going up. The amount they spend keeps going down.
- JumpCrisscross 5y ago
  > dollar is getting cheaper every year through inflation. Hoarding USD is impossible over the long term. The U.S. dollar is a transactional currency. It's very good at that. If you're holding value over longer terms and want cash-like liquidity and security, you hold Treasuries, which are inflation resistant.

Ancapistani 5y ago

> if Bitcoin is supplied constrained as it is promised To my knowledge, this could only be changed through unanimous consensus across the entire Bitcoin network. That’s possible, but practically speaking this would nearly certainly result in a fork. Is there another way that the 21m Bitcoin constraint could be broken that I’m unaware of?

lottin 5y ago

> interesting to observe the other factors (wage and services) deflate as the theory predicts The theory doesn't predict deflation. Any trade imbalance must be balanced out with an equivalent flow of money in the opposite direction. This means the quantity of money, and by extension the price level, will change according to the balance of trade. Therefore the theory predicts inflation in countries that have a trade surplus, and deflation in those that have trade deficit.