5 ms·

It seems their monetary policy is remittances. My guess is ppl will quickly cash out to dollars. But how will the dollars get back to the local exchanges unles

It seems their monetary policy is remittances. My guess is ppl will quickly cash out to dollars. But how will the dollars get back to the local exchanges unless people are buying bitcoin there? This seems like a disaster in the making.

toomuchtodo 5y ago
Indeed, but it’s still a natural experiment to observe.
- azinman2 5y ago
  On a very poor population where even a 1% swing in valuation can make a huge difference in someone’s life. There’s also no recourse for fraud here — the industry has all kinds of scrupulous players and isn’t as locked down as traditional banking. To me, it seems like El Salvador should have created a MoneyGram competitor and left it at that. They could remove/reduce commission without all the rest of the risks.
  - toomuchtodo 5y ago
    To your point, they could've partnered with TransferWise/Wise.com or OFX to build a white label app that allowed for frictionless remittance and fiat management for their citizens and "wallet management" (ie deposit accounts), and your usual fintech wallet accounts. This would be no different than the UK's Faster Payment's service being a managed service by Vocalink [1]. Some have proposed the US Fed issuing FedAccounts, deposit accounts held at the Fed with no fees, to sidestep inequity and predatory behavior from commercial banks. This would be very similar, except the El Salvador government outsourcing these functions (as they rely primarily on the US dollar as their currency) and the cross border exchange. Onboard citizens using their DUI (Documento Único de Identidad) or Passport number, voilà, they're banked and can store or transfer monetary value. Subsidize physical hardware for those who can't afford a smart phone. Does El Salvador need a blockchain or crypto? No, of course not. They need inexpensive facilitation of domestic financial services and cross border remittance to reduce currency import drag. Instead, inept politicians (for various reasons out of scope for this thread) are going to cause a lot of suffering, but it will be helpful to have a case study to point to in order to demonstrate the nation state policy failure. This is worse than being reliant on another country's monetary policy and central bank. You're tying your economy to a speculative asset with few governance mechanisms. C'est la vie. [1] https://www.vocalink.com/payment-processing/real-time-payments/ https://www.vocalink.com/payment-processing/real-time-paymen...
    - Karrot_Kream 5y ago
      They can still do this. It's not like BTC is the only legal tender here. They still continue to use USD as legal tender.
- lottin 5y ago
  It isn't exactly natural though.
thehappypm 5y ago
My guess is that this will dramatically drop the value of Bitcoin, as has happened many times before when a government tries to introduce a new currency. Scenario: I want to send my mom $1,000. That would cost me $200 with a remittance, but it's only $20 with Bitcoin. Success! I send her the $9980. Now my mom has $9980 equivalent in Bitcoin. So she goes to the store. The local grocery store has to accept Bitcoin, so she buys up stuff. Success! Suddenly the grocery store needs to pay its bills. It pays its suppliers in Bitcoin. Success! The suppliers' suppliers, who are importing many of these goods from abroad, say FUCK NO and don't accept Bitcoin, they need hard cash. Or perhaps the farmers who grow the crops need to purchase fertilizer from abroad, same story. Okay, the suppliers need to convert their Bitcoin to dollars, piece of cake, right? Suddenly there's a problem: Bitcoin is converted to dollars only when dollars are going to be sent out of the country, and suddenly all of those Bitcoin transactions need to be backed up by USD. USD which never flowed into the country in the first place, because I sent BTC and not USD. Suddenly USD is much more scarce than BTC. That sinks the exchange rate.

toomuchtodo 5y ago

Indeed, but it’s still a natural experiment to observe.

azinman2 5y ago
On a very poor population where even a 1% swing in valuation can make a huge difference in someone’s life. There’s also no recourse for fraud here — the industry has all kinds of scrupulous players and isn’t as locked down as traditional banking. To me, it seems like El Salvador should have created a MoneyGram competitor and left it at that. They could remove/reduce commission without all the rest of the risks.
- toomuchtodo 5y ago
  To your point, they could've partnered with TransferWise/Wise.com or OFX to build a white label app that allowed for frictionless remittance and fiat management for their citizens and "wallet management" (ie deposit accounts), and your usual fintech wallet accounts. This would be no different than the UK's Faster Payment's service being a managed service by Vocalink [1]. Some have proposed the US Fed issuing FedAccounts, deposit accounts held at the Fed with no fees, to sidestep inequity and predatory behavior from commercial banks. This would be very similar, except the El Salvador government outsourcing these functions (as they rely primarily on the US dollar as their currency) and the cross border exchange. Onboard citizens using their DUI (Documento Único de Identidad) or Passport number, voilà, they're banked and can store or transfer monetary value. Subsidize physical hardware for those who can't afford a smart phone. Does El Salvador need a blockchain or crypto? No, of course not. They need inexpensive facilitation of domestic financial services and cross border remittance to reduce currency import drag. Instead, inept politicians (for various reasons out of scope for this thread) are going to cause a lot of suffering, but it will be helpful to have a case study to point to in order to demonstrate the nation state policy failure. This is worse than being reliant on another country's monetary policy and central bank. You're tying your economy to a speculative asset with few governance mechanisms. C'est la vie. [1] https://www.vocalink.com/payment-processing/real-time-payments/ https://www.vocalink.com/payment-processing/real-time-paymen...
  - Karrot_Kream 5y ago
    They can still do this. It's not like BTC is the only legal tender here. They still continue to use USD as legal tender.
lottin 5y ago
It isn't exactly natural though.

thehappypm 5y ago

My guess is that this will dramatically drop the value of Bitcoin, as has happened many times before when a government tries to introduce a new currency. Scenario: I want to send my mom $1,000. That would cost me $200 with a remittance, but it's only $20 with Bitcoin. Success! I send her the $9980. Now my mom has $9980 equivalent in Bitcoin. So she goes to the store. The local grocery store has to accept Bitcoin, so she buys up stuff. Success! Suddenly the grocery store needs to pay its bills. It pays its suppliers in Bitcoin. Success! The suppliers' suppliers, who are importing many of these goods from abroad, say FUCK NO and don't accept Bitcoin, they need hard cash. Or perhaps the farmers who grow the crops need to purchase fertilizer from abroad, same story. Okay, the suppliers need to convert their Bitcoin to dollars, piece of cake, right? Suddenly there's a problem: Bitcoin is converted to dollars only when dollars are going to be sent out of the country, and suddenly all of those Bitcoin transactions need to be backed up by USD. USD which never flowed into the country in the first place, because I sent BTC and not USD. Suddenly USD is much more scarce than BTC. That sinks the exchange rate.