The economic planet | El Salvador and Canada, same fight?

Canada and El Salvador are very different countries with similarities: two politicians are convinced that cryptocurrencies, especially bitcoin, are a way to free people from the barriers of the financial system.

Posted on April 4

Helene Baril

Helene Baril
The Press

The one seeking the post of Prime Minister of Canada, Pierre Poilievre, is outraged against the Bank of Canada and monetary policy in general. He promises, if he leads the country, to generalize the use of bitcoin and other cryptocurrencies in all transactions to protect Canadians from the inflation created, he said, by the massive purchase of federal bonds. central bank government to support the economy during the pandemic.

If that happens, it will be the first time a country has put its central bank in competition with another official financial system. Despite their popularity, cryptocurrencies are under scrutiny by a growing number of governments, who want to regulate their use. Countries like China have explicitly banned them and others have created their own digital currency using blockchain technology.

So far, El Salvador is the only country that has made bitcoin its national currency. Its president, Nayib Bukele, is betting heavily on the future of bitcoin.

He wanted to create a city from scratch to accommodate bitcoin miners in a community where there are no taxes or duties. The Salvadoran government wants to issue US $ 1 billion bitcoin bonds to build its Bitcoin City, a fully-serviced town near a volcano that will provide it with geothermal energy because bitcoin mining requires so much energy.


The President of El Salvador, Nayib Bukele

El Salvador abandoned its national currency, the colon, in 2001 for the US dollar. It no longer controls any monetary policy tool. By using bitcoin as a national currency, the government’s argument to convince the population is first and foremost economic. Bitcoin allows expatriates to transfer money free of charge to their families in their home, which is a very important source of income for Salvadorans.

The experience is young

The Salvadoran experience is still too young, over a year, to draw conclusions. But transactions in bitcoins are still marginal in this country of 6.5 million inhabitants, poor and very indebted, local media reports. This does not stop the president from pursuing his ambitious bet to make his country the world capital of bitcoin. But he risks fighting the harsh reality.

That was with the International Monetary Fund (IMF), in the beginning. El Salvador benefits from international assistance and needs IMF support to continue to operate and honor its obligations. However, the IMF has clearly asked the Salvadoran government to backtrack and withdraw the national currency status granted to bitcoin.

The benefits of bitcoin for the population, i.e., access to a free exchange system, pale in comparison to the risks associated with cryptocurrencies, the IMF explains in a recent report in El Salvador.

Bitcoin and other cryptocurrencies are a parallel channel that allows all types of transactions to be performed in complete anonymity. They can be used to finance all types of activity, including tax evasion and terrorism, the IMF points out.

But for the people of El Salvador, the biggest risk is the volatility of bitcoin, which can enrich someone and ruin them in a very short time. In the event of a rapid collapse in the value of bitcoin, the government will have to take out more debt to ensure the convertibility of bitcoin into US dollars, the IMF warns.

On the whole, El Salvador may have a chance to get rich with bitcoin, but it could also go bankrupt.

Over the past year, bitcoin has fallen from a high of US $ 68,789 to a low of $ 28,893, and was worth approximately US $ 46,200 on Friday. To protect against inflation, this is certainly not ideal. Nor is it a way to regain control of the currency, as the contender leader of the Conservative Party of Canada said, because bitcoin fluctuates more than any currency and for all sorts of reasons most often.

Mr. Poilievre said he wanted to make Canada “the most independent country on Earth” using cryptocurrencies. In El Salvador, Mr. Bukule to make his own bitcoin paradise. Canada and El Salvador, same fight? We will see everything.

Learn more

  • 9 countries
    This is the number of central banks that have created their own digital currency with blockchain technology. Pilot projects are underway in 14 countries and many others, including Canada, are examining this possibility.


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