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I'm pretty open to the idea that their crypto experiment ended in failure because bitcoin must be a truly terrible reserve asset, but being assassinated by the

by roenxi 2y ago

I'm pretty open to the idea that their crypto experiment ended in failure because bitcoin must be a truly terrible reserve asset, but being assassinated by the IMF isn't really evidence of that. El Salvador doesn't seem to have independently changed their minds about the merits of their policy. I might draw a very vague parallel with a gentleman who can't repay a mortgage and through various machinations the bank forces him to sell his beanie baby collection. The beanie baby collection might have been a success or a failure for him personally. Probably was a failure. But that isn't really what we're learning in this story. And pointing out that they lose money on the bitcoin reserve is a bit of a non-sequiter. They all do that. Gold has storage costs, the USD inflates like crazy and sometimes the US sanctions you. The analysis has to be a bit deeper than just noting that money was lost, it is a tricky question of relative options.

tptacek 2y ago
The article makes a case on the merits for the failure of the project, in terms of its uptake, the direct value generated, and the costs of its rollout.
- roenxi 2y ago
  Those arguments could be levelled against any currency. Typically uptake is only 100% because the government has a "thou shalt accept this" policy. If it was practically voluntary then a bunch of businesses would operate on a barter system or private scrip. Even with the insistence of the tax office it takes regular crackdowns to stop alternatives springing up. And it is even easy to argue that normal currency is value destructive, all the flows of money into crypto are implicit "I'd rather be burning energy than using USD" announcements.
  - tptacek 2y ago
    "Nobody used it and the costs didn't justify the usage" is a complaint you can level at any currency?
    - roenxi 2y ago
      Yes. Using any particular currency generally isn't voluntary. If El Salvador had mandated everyone use only bitcoin then it everyone would have been using it. If using USD was voluntary in the US a lot less people would use it. It isn't a particularly strong argument to say that everybody uses one thing that they are legally required to use, then compare it to a new alternative that didn't gain total dominance in a few years. Although in this case I am happy to agree it might be true despite being a weak argument, I can see a lot of good reasons why someone wouldn't want to use Bitcoin in practice. But the article didn't touch them when declaring a failure and the experiment wasn't run to a natural conclusion where the people involved decided it was not working.
      - tptacek 2y ago
        It feels like you're trying to say "Bitcoin was never really tried" because Bukeli didn't make it the exclusive currency of El Salvador.
        ty6853 2y ago
        Paper money was first used in the West in Massachusetts Bay Colony in 1690, was used in limited fashion, became unpopular and then phased out. And that was the end -- paper money was a failure. Wait.... The currency was initially unpopular for anything except paying taxes, and was phased out. Within a few years, however, paper currency would return to Massachusetts. The Bank of England began issuing banknotes in 1695, also to pay for war against the French, and they became increasingly common throughout the 18th Century.
      - ramchip 2y ago
        > If using USD was voluntary in the US a lot less people would use it. I'm curious what makes you think so, and what the alternatives would be. My impression is actually that if shops weren't forced to accept USD, 100% would still do so.
        roenxi 2y ago
  - crazygringo 2y ago
    No, this was very specific to crypto: > The IMF was wary of lending to El Salvador while bitcoin was legal tender. Its volatile price posed a risk to financial and fiscal stability. Government currencies don't have the price volatility of Bitcoin. You simply can't reliably manage an economy with that kind of volatility.
    - ty6853 2y ago
      You also can't print to oblivion while sending your hard money overseas if the plebs operate and pay taxes in Bitcoin.
    - john_texas 2y ago
      [dead]
    - roenxi 2y ago
      Why not? Government currencies are volatile too, people just tend to ignore that or blame price changes on greedy businesses. Prices change continuously. You can never be sure what the price of anything is going to be next week.
      - crazygringo 2y ago
        > Government currencies are volatile too Nowhere near to the same extent. Just over the past year BTC has gone between $54K and $104K. Currencies are subject to inflation, but in a well managed economy that is generally a single digit yearly percentage and fluctuates slowly, and the currency changes value in a single direction only. Normal government currencies don't gain or lose 10% of their value over a few days in purchasing power, as regularly happens with Bitcoin.
        Xen9 2y ago
        The distinction between government and crypto currencies is wrong one to make. I fail to see how gold-pegged, gasselized (demurraged at constant rate until they vanish down to UBI limit, except from government/CB wallets, with other assets also demurraged when sold/bought via cap gains style taxes), constant supply cryptocurrency would not be in fact better than the dollar and the euro and the yen, and it would be both inflation & deflation resistant.
  - SpicyLemonZest 2y ago
    The Salvadoran government did have a "thou shalt accept this" policy, in addition to exempting bitcoin holdings from capital gains tax. It worked to drive initial interest, with a quarter of Salvadorans using Bitcoin for at least some transactions in 2021, but adoption fell sharply over time. I haven't studied it in depth, but my vague understanding is that many businesses couldn't actually figure out how to practically accept Bitcoin despite being theoretically required to.
    - Ferret7446 2y ago
      Which isn't surprising. Bitcoin is unfortunately not well suited for petty transactions, even though it shines as a truly neutral platform for larger transactions. They should have tried to implement something like Lightning nationwide; some of Lightning's flaws could be overcome with government investment/buy-in.
    - roenxi 2y ago
      And we can see the IMF got on that lickity split before anyone figured it out how to make the system convenient. 4 years to detect and act on this sort of international action is commendably speedy. I'd expect that the experiment would fail. The IMF probably expected it would fail. But we can also observe that the IMF moved with the speed of bankers worried that it might succeed.
- Lerc 2y ago
  I don't know, they say that they're up $250M but the total cost of the program was $375M. I presume the bulk of that $375 went into the $30 incentive balance. That amounts to quite an economic stimulus for cheap. All in all, El Salvador has been doing pretty well economically. It's human rights that have been the worrying point.
deleted 2y ago
[deleted]
stefan_ 2y ago
I don't understand, it seems you and the IMF agree on bitcoin being a truly terrible reserve asset.
- roenxi 2y ago
  I can certainly see why you would believe I am always right about everything, but the truth is stranger than fiction - sometimes even I am confidently wrong! Just because I agree with the IMF doesn't make either of us correct. It was El Salvador's experiment and the IMF's motivations are highly suspect. They are globalist political actors, they aren't motivated by any particular love of the economies they intervene in or the people in them.
  - Halfwhit 2y ago
    I really like your writing style and effort to critique both sides of a debate, do you happen to have a blog or anything?
    - roenxi 2y ago
      No I just argue with people on HN. Thanks for the kind words though, it made my evening feel more cheerful.
wmf 2y ago
Historically you could make money by holding Bitcoin for over four year but El Salvador gave up before that and they never bought much to begin with. The other aspects like remittances and Bitcoin-based retail payments were always terrible ideas. Not surprisingly that's where their losses come from.
neither_color 2y ago
The legal tender experiment failed, the crypto experiment is ongoing. An entrepreneurial audience like this would be more charitable in interpretation if this was a company in the middle of a pivot.
jongjong 2y ago
Conspiracy theorists have been predicting the IMF getting involved in El Salvador since the day they got involved in Bitcoin. Those who read the conspiracy theory posts years ago are now rolling their eyes reading such articles.
deleted 2y ago
[deleted]
jakejake2025 2y ago
It doesn't matter what El Salvador thinks of Bitcoin. For it to succeed it needs to be accepted by institutions such as the IMF. That's great that it sounds good in theory but if a currency isn't widely accepted it's a failure.

by roenxi 2y ago

tptacek 2y ago

The article makes a case on the merits for the failure of the project, in terms of its uptake, the direct value generated, and the costs of its rollout.

roenxi 2y ago
Those arguments could be levelled against any currency. Typically uptake is only 100% because the government has a "thou shalt accept this" policy. If it was practically voluntary then a bunch of businesses would operate on a barter system or private scrip. Even with the insistence of the tax office it takes regular crackdowns to stop alternatives springing up. And it is even easy to argue that normal currency is value destructive, all the flows of money into crypto are implicit "I'd rather be burning energy than using USD" announcements.
- tptacek 2y ago
  "Nobody used it and the costs didn't justify the usage" is a complaint you can level at any currency?
  - roenxi 2y ago
    Yes. Using any particular currency generally isn't voluntary. If El Salvador had mandated everyone use only bitcoin then it everyone would have been using it. If using USD was voluntary in the US a lot less people would use it. It isn't a particularly strong argument to say that everybody uses one thing that they are legally required to use, then compare it to a new alternative that didn't gain total dominance in a few years. Although in this case I am happy to agree it might be true despite being a weak argument, I can see a lot of good reasons why someone wouldn't want to use Bitcoin in practice. But the article didn't touch them when declaring a failure and the experiment wasn't run to a natural conclusion where the people involved decided it was not working.
    - tptacek 2y ago
      It feels like you're trying to say "Bitcoin was never really tried" because Bukeli didn't make it the exclusive currency of El Salvador.
      - ty6853 2y ago
        Paper money was first used in the West in Massachusetts Bay Colony in 1690, was used in limited fashion, became unpopular and then phased out. And that was the end -- paper money was a failure. Wait.... The currency was initially unpopular for anything except paying taxes, and was phased out. Within a few years, however, paper currency would return to Massachusetts. The Bank of England began issuing banknotes in 1695, also to pay for war against the French, and they became increasingly common throughout the 18th Century.
    - ramchip 2y ago
      > If using USD was voluntary in the US a lot less people would use it. I'm curious what makes you think so, and what the alternatives would be. My impression is actually that if shops weren't forced to accept USD, 100% would still do so.
      - roenxi 2y ago
- crazygringo 2y ago
  No, this was very specific to crypto: > The IMF was wary of lending to El Salvador while bitcoin was legal tender. Its volatile price posed a risk to financial and fiscal stability. Government currencies don't have the price volatility of Bitcoin. You simply can't reliably manage an economy with that kind of volatility.
  - ty6853 2y ago
    You also can't print to oblivion while sending your hard money overseas if the plebs operate and pay taxes in Bitcoin.
  - john_texas 2y ago
    [dead]
  - roenxi 2y ago
    Why not? Government currencies are volatile too, people just tend to ignore that or blame price changes on greedy businesses. Prices change continuously. You can never be sure what the price of anything is going to be next week.
    - crazygringo 2y ago
      > Government currencies are volatile too Nowhere near to the same extent. Just over the past year BTC has gone between $54K and $104K. Currencies are subject to inflation, but in a well managed economy that is generally a single digit yearly percentage and fluctuates slowly, and the currency changes value in a single direction only. Normal government currencies don't gain or lose 10% of their value over a few days in purchasing power, as regularly happens with Bitcoin.
      - Xen9 2y ago
        The distinction between government and crypto currencies is wrong one to make. I fail to see how gold-pegged, gasselized (demurraged at constant rate until they vanish down to UBI limit, except from government/CB wallets, with other assets also demurraged when sold/bought via cap gains style taxes), constant supply cryptocurrency would not be in fact better than the dollar and the euro and the yen, and it would be both inflation & deflation resistant.
- SpicyLemonZest 2y ago
  The Salvadoran government did have a "thou shalt accept this" policy, in addition to exempting bitcoin holdings from capital gains tax. It worked to drive initial interest, with a quarter of Salvadorans using Bitcoin for at least some transactions in 2021, but adoption fell sharply over time. I haven't studied it in depth, but my vague understanding is that many businesses couldn't actually figure out how to practically accept Bitcoin despite being theoretically required to.
  - Ferret7446 2y ago
    Which isn't surprising. Bitcoin is unfortunately not well suited for petty transactions, even though it shines as a truly neutral platform for larger transactions. They should have tried to implement something like Lightning nationwide; some of Lightning's flaws could be overcome with government investment/buy-in.
  - roenxi 2y ago
    And we can see the IMF got on that lickity split before anyone figured it out how to make the system convenient. 4 years to detect and act on this sort of international action is commendably speedy. I'd expect that the experiment would fail. The IMF probably expected it would fail. But we can also observe that the IMF moved with the speed of bankers worried that it might succeed.
Lerc 2y ago
I don't know, they say that they're up $250M but the total cost of the program was $375M. I presume the bulk of that $375 went into the $30 incentive balance. That amounts to quite an economic stimulus for cheap. All in all, El Salvador has been doing pretty well economically. It's human rights that have been the worrying point.

deleted 2y ago

[deleted]

stefan_ 2y ago

I don't understand, it seems you and the IMF agree on bitcoin being a truly terrible reserve asset.

roenxi 2y ago
I can certainly see why you would believe I am always right about everything, but the truth is stranger than fiction - sometimes even I am confidently wrong! Just because I agree with the IMF doesn't make either of us correct. It was El Salvador's experiment and the IMF's motivations are highly suspect. They are globalist political actors, they aren't motivated by any particular love of the economies they intervene in or the people in them.
- Halfwhit 2y ago
  I really like your writing style and effort to critique both sides of a debate, do you happen to have a blog or anything?
  - roenxi 2y ago
    No I just argue with people on HN. Thanks for the kind words though, it made my evening feel more cheerful.

wmf 2y ago

Historically you could make money by holding Bitcoin for over four year but El Salvador gave up before that and they never bought much to begin with. The other aspects like remittances and Bitcoin-based retail payments were always terrible ideas. Not surprisingly that's where their losses come from.

neither_color 2y ago

The legal tender experiment failed, the crypto experiment is ongoing. An entrepreneurial audience like this would be more charitable in interpretation if this was a company in the middle of a pivot.

jongjong 2y ago

Conspiracy theorists have been predicting the IMF getting involved in El Salvador since the day they got involved in Bitcoin. Those who read the conspiracy theory posts years ago are now rolling their eyes reading such articles.

deleted 2y ago

[deleted]

jakejake2025 2y ago

It doesn't matter what El Salvador thinks of Bitcoin. For it to succeed it needs to be accepted by institutions such as the IMF. That's great that it sounds good in theory but if a currency isn't widely accepted it's a failure.