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To put the numbers in context: - El Salvador has spent $104M on BTC - They have lost about $47M on their investment - They have a GDP of about $28B [1] - Th

To put the numbers in context: - El Salvador has spent $104M on BTC - They have lost about $47M on their investment - They have a GDP of about $28B [1] - They have an annual government budget of about $5.6B [2] So they've blown about 1% of their annual budget on BTC. Far from catastrophic. [1] https://tradingeconomics.com/el-salvador/gdp https://tradingeconomics.com/el-salvador/gdp [2] https://tradingeconomics.com/el-salvador/government-spending https://tradingeconomics.com/el-salvador/government-spending

JumpCrisscross 4y ago
> So they've blown about 1% of their annual budget on BTC. Far from catastrophic The Bitcoin decision is single handedly marching San Salvador into a currency crisis [1]. Food and fuel are among their top imports, so that likely leads to political crisis. [1] https://news.ycombinator.com/item?id=32487630 https://news.ycombinator.com/item?id=32487630
- defgeneric 4y ago
  > The Bitcoin decision is single handedly marching San Salvador into a currency crisis This is an extreme oversimplification. The issue is that decision to make Bitcoin legal tender has put El Salvador at odds with the IMF. Arguably they would have been at odds anyway, and the IMF is simply using this issue as leverage (as well as to foment internal political divisions). The issue is primarily political (not economic!), especially considering the small amount of money invested in relation to the country's overall finances.
  - toomuchtodo 4y ago
    When your lender of last resort tells you to jump, you say “how high?” or starve. El Salvador needs the IMF more than the IMF needs El Salvador. It’s political in the sense that the IMF doesn’t want to throw fiat at an irresponsible government that is gambling away sovereign dollars. Good money after bad and all that.
    - ccooffee 4y ago
      "Appease the moneyed classes or starve" doesn't seem like a very just way to run the world. Granted, the IMF isn't the arbiter of justice, but punishing the PEOPLE of El Salvador for the actions of the local ruling classes is just cruel. Even if the "financial trouble" could lead to "regime change", we're obscuring the horrors for the citizenry behind some smarmy journalism words.
      - toomuchtodo 4y ago
        So stage a coup and put adults in charge instead of a crypto bro gambling away a nation’s sovereign funds. I agree the IMF should assist the El Salvadoran people, but that’s not currently an option being presented.
        tasuki 4y ago
        > So stage a coup Have you ever stayed a coup? It is very very difficult. And historically, the consequences of coups have been mixed. It's like people saying the Russians should just overthrow Putin...
        deleted 4y ago
        [deleted]
  - JumpCrisscross 4y ago
    > that decision to make Bitcoin legal tender has put El Salvador at odds with the IMF It also prompted downgrades from ratings agencies, credit spreads to widen in the international bond markets, took bilateral bailouts from e.g. the World Bank or the U.S. (its primary remittance and export provider) off the table, et cetera. > small amount of money invested in relation to the country's overall finances $100mm in a $29bn economy is a lot. Scaled to America's $24.9tn [1] GDP, it's $85bn. It's also something like 4% of their FX reserves and close to 10% of the money they're asking the IMF for. [1] https://www.bea.gov/sites/default/files/2022-07/gdp2q22_adv.pdf https://www.bea.gov/sites/default/files/2022-07/gdp2q22_adv....
- neither_color 4y ago
  single handedly marching San Salvador into a currency crisis How can they be having a currency crisis when they don't have a currency? It's more accurate to say they're headed for insolvency or something.
  - JumpCrisscross 4y ago
    > How can they be having a currency crisis when they don't have a currency? You're right. It's technically a balance of payments crisis. At the brink, and from outside, they model similarly. Deposits in El Salvador banks start behaving like a currency as international depositors haircut against the risk of seizure and capital controls. From inside, they're different as the long inflationary phase of a currency crisis is truncated to a default and reset.
    - imtringued 4y ago
      This makes it sound as if El Salvador should have introduced something similar to the Chiemgauer in Germany. Basically it is a local currency that keeps money within the region, it has a circulation safeguard which is supposed to prevent stagnation which is how most complementary currencies die. The interesting part however is that it is 100% backed by euros. The circulation safeguard and the trade in fee make the Chiemgauer just a tiny bit less valuable than actual euros. If El Salvador implemented such a system it would be dollarized but at the same time have a slightly devalued exchange rate vs the dollar which discourages imports and encourages exports to the US. What El Salvador is experiencing is basically the North American equivalent of the Greek economic crisis.
dangerwill 4y ago
1.8% of a national budget is a huge deal though. For the US government that would be 2 - 3 NASAs. Not catastrophic but that doesn't mean we shouldn't push back against national governments gambling with their treasuries on purely speculative assets.
otto_ortega 4y ago
Nope. As a Salvadorean the "they've blown about 1% of their annual budget" argument irritates me... First of all: "annual government budget of about $5.6B" this is misleading, the government is 100% reliant on NEW debt to operate, there is NO "disposable income" not even a penny... Heck, the goverment just approved a new $650M debt package to execute a "last resort" strategy and try to pay old debt by buying bonds expiring on early 2023 at below face-value price, because lenders have pretty much lost faith on the goverment having the capacity to pay, so they are "cutting loses". 1% may look like nothing at face value, but when you are even a little bit informed about Salvadorean reality you know that $104M is A LOT of money for a country where the ICUs of the most important hospital of the public network get FLOODED every time there is a couple of hours of rain [1] and rebuilding the whole hospital would cost $170M... [1] https://www.elsalvador.com/noticias/nacional/tormenta-bonnie-hospital-rosales-nayib-bukele-ministerio-de-obras-publicas-/973541/2022/ https://www.elsalvador.com/noticias/nacional/tormenta-bonnie...
- superb-owl 4y ago
  To be clear - not saying this was a good decision on the government's part. I agree it seems pretty poorly thought out. Appreciate all the other info!
tsimionescu 4y ago
1% of the annual budget of a country is a HUGE amount. There are likely entire ministries that only get 2-3% of the budget, or less.
purple_ferret 4y ago
Here are some other useful stats: Their credit rating has been downgraded to CCC (ie DEEP JUNK)[0] They're looking at financing needs off 15% of GDP: >Both JPMorgan and the International Monetary Fund warn the country is on an unsustainable path, with gross financing needs set to surpass 15% of GDP from 2022 forward — and public debt on track to hit 96% of GDP by 2026 under current policies. [1] [0]https://www.fitchratings.com/research/sovereigns/fitch-downgrades-el-salvador-long-term-idr-to-ccc-from-b-09-02-2022 https://www.fitchratings.com/research/sovereigns/fitch-downg... [1]https://www.cnbc.com/2022/06/25/el-salvador-bitcoin-experiment-not-saving-countrys-finances.html https://www.cnbc.com/2022/06/25/el-salvador-bitcoin-experime...
- fleddr 4y ago
  The US hit public debt of 135% 2 years ago. The US has not had an annual surplus since 2001 and in the last 2 years had a deficit of about 3T(!). I know, better rating, world reserve currency, etc. Just adding some context to "fiscal responsibility".
crowquill 4y ago
> They have lost about $47M on their investment They haven’t lost anything unless they sell.
- superb-owl 4y ago
  If they're looking to make BTC an actual currency, they have. Its purchasing power has been cut in half.

JumpCrisscross 4y ago

> So they've blown about 1% of their annual budget on BTC. Far from catastrophic The Bitcoin decision is single handedly marching San Salvador into a currency crisis [1]. Food and fuel are among their top imports, so that likely leads to political crisis. [1] https://news.ycombinator.com/item?id=32487630 https://news.ycombinator.com/item?id=32487630

defgeneric 4y ago
> The Bitcoin decision is single handedly marching San Salvador into a currency crisis This is an extreme oversimplification. The issue is that decision to make Bitcoin legal tender has put El Salvador at odds with the IMF. Arguably they would have been at odds anyway, and the IMF is simply using this issue as leverage (as well as to foment internal political divisions). The issue is primarily political (not economic!), especially considering the small amount of money invested in relation to the country's overall finances.
- toomuchtodo 4y ago
  When your lender of last resort tells you to jump, you say “how high?” or starve. El Salvador needs the IMF more than the IMF needs El Salvador. It’s political in the sense that the IMF doesn’t want to throw fiat at an irresponsible government that is gambling away sovereign dollars. Good money after bad and all that.
  - ccooffee 4y ago
    "Appease the moneyed classes or starve" doesn't seem like a very just way to run the world. Granted, the IMF isn't the arbiter of justice, but punishing the PEOPLE of El Salvador for the actions of the local ruling classes is just cruel. Even if the "financial trouble" could lead to "regime change", we're obscuring the horrors for the citizenry behind some smarmy journalism words.
    - toomuchtodo 4y ago
      So stage a coup and put adults in charge instead of a crypto bro gambling away a nation’s sovereign funds. I agree the IMF should assist the El Salvadoran people, but that’s not currently an option being presented.
      - tasuki 4y ago
        > So stage a coup Have you ever stayed a coup? It is very very difficult. And historically, the consequences of coups have been mixed. It's like people saying the Russians should just overthrow Putin...
        deleted 4y ago
        [deleted]
- JumpCrisscross 4y ago
  > that decision to make Bitcoin legal tender has put El Salvador at odds with the IMF It also prompted downgrades from ratings agencies, credit spreads to widen in the international bond markets, took bilateral bailouts from e.g. the World Bank or the U.S. (its primary remittance and export provider) off the table, et cetera. > small amount of money invested in relation to the country's overall finances $100mm in a $29bn economy is a lot. Scaled to America's $24.9tn [1] GDP, it's $85bn. It's also something like 4% of their FX reserves and close to 10% of the money they're asking the IMF for. [1] https://www.bea.gov/sites/default/files/2022-07/gdp2q22_adv.pdf https://www.bea.gov/sites/default/files/2022-07/gdp2q22_adv....
neither_color 4y ago
single handedly marching San Salvador into a currency crisis How can they be having a currency crisis when they don't have a currency? It's more accurate to say they're headed for insolvency or something.
- JumpCrisscross 4y ago
  > How can they be having a currency crisis when they don't have a currency? You're right. It's technically a balance of payments crisis. At the brink, and from outside, they model similarly. Deposits in El Salvador banks start behaving like a currency as international depositors haircut against the risk of seizure and capital controls. From inside, they're different as the long inflationary phase of a currency crisis is truncated to a default and reset.
  - imtringued 4y ago
    This makes it sound as if El Salvador should have introduced something similar to the Chiemgauer in Germany. Basically it is a local currency that keeps money within the region, it has a circulation safeguard which is supposed to prevent stagnation which is how most complementary currencies die. The interesting part however is that it is 100% backed by euros. The circulation safeguard and the trade in fee make the Chiemgauer just a tiny bit less valuable than actual euros. If El Salvador implemented such a system it would be dollarized but at the same time have a slightly devalued exchange rate vs the dollar which discourages imports and encourages exports to the US. What El Salvador is experiencing is basically the North American equivalent of the Greek economic crisis.

dangerwill 4y ago

1.8% of a national budget is a huge deal though. For the US government that would be 2 - 3 NASAs. Not catastrophic but that doesn't mean we shouldn't push back against national governments gambling with their treasuries on purely speculative assets.

otto_ortega 4y ago

Nope. As a Salvadorean the "they've blown about 1% of their annual budget" argument irritates me... First of all: "annual government budget of about $5.6B" this is misleading, the government is 100% reliant on NEW debt to operate, there is NO "disposable income" not even a penny... Heck, the goverment just approved a new $650M debt package to execute a "last resort" strategy and try to pay old debt by buying bonds expiring on early 2023 at below face-value price, because lenders have pretty much lost faith on the goverment having the capacity to pay, so they are "cutting loses". 1% may look like nothing at face value, but when you are even a little bit informed about Salvadorean reality you know that $104M is A LOT of money for a country where the ICUs of the most important hospital of the public network get FLOODED every time there is a couple of hours of rain [1] and rebuilding the whole hospital would cost $170M... [1] https://www.elsalvador.com/noticias/nacional/tormenta-bonnie-hospital-rosales-nayib-bukele-ministerio-de-obras-publicas-/973541/2022/ https://www.elsalvador.com/noticias/nacional/tormenta-bonnie...

superb-owl 4y ago
To be clear - not saying this was a good decision on the government's part. I agree it seems pretty poorly thought out. Appreciate all the other info!

tsimionescu 4y ago

1% of the annual budget of a country is a HUGE amount. There are likely entire ministries that only get 2-3% of the budget, or less.

purple_ferret 4y ago

Here are some other useful stats: Their credit rating has been downgraded to CCC (ie DEEP JUNK)[0] They're looking at financing needs off 15% of GDP: >Both JPMorgan and the International Monetary Fund warn the country is on an unsustainable path, with gross financing needs set to surpass 15% of GDP from 2022 forward — and public debt on track to hit 96% of GDP by 2026 under current policies. [1] [0]https://www.fitchratings.com/research/sovereigns/fitch-downgrades-el-salvador-long-term-idr-to-ccc-from-b-09-02-2022 https://www.fitchratings.com/research/sovereigns/fitch-downg... [1]https://www.cnbc.com/2022/06/25/el-salvador-bitcoin-experiment-not-saving-countrys-finances.html https://www.cnbc.com/2022/06/25/el-salvador-bitcoin-experime...

fleddr 4y ago
The US hit public debt of 135% 2 years ago. The US has not had an annual surplus since 2001 and in the last 2 years had a deficit of about 3T(!). I know, better rating, world reserve currency, etc. Just adding some context to "fiscal responsibility".

crowquill 4y ago

> They have lost about $47M on their investment They haven’t lost anything unless they sell.

superb-owl 4y ago
If they're looking to make BTC an actual currency, they have. Its purchasing power has been cut in half.