Cryptocurrency

Could El Salvador’s bitcoin decision drag down its economy?

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Steve Hanke, a professor of applied economics at Johns Hopkins University, has warned El Salvador about the big consequences of its decision in making bitcoin its legal tender.

In an interview with streaming financial news provider Kitco News, he questioned how bitcoin would function in El Salvador citizens’ day-to-day transactions. 

One more concerning thing about El Salvador’s decision, according to him, is that bitcoin holders from Russia and China could take advantage of this law and withdraw their holdings in the country. Hanke said this imminent situation can drain the nation’s US dollar reserves. 

“It has the potential to completely collapse the economy because all the dollars in El Salvador could be vacuumed up and there’d be no money in the country,” he said.

According to him, this is highly possible since the country doesn’t have a domestic currency of its own. 

Mixed reactions

JPMorgan also expressed their concern about El Salvador’s decision and said in a statement that real economic benefits are not clear in making bitcoin a second legal tender. 

On the other hand, the Central American Bank for Economic Integration (CAEBI) said it is optimistic about the country’s bold move. In fact, it will even form a technical advisory group to help El Salvador use cryptocoin as a legal tender. 

Blunt comments

The professor/economist didn’t mince words about El Salvador’s potentially devastating decision. He even called the country’s representatives who have passed the bitcoin Law as “stupid.” 

Hanke also speculated that there are people, whom he called “dark forces”, who were behind the country’s drastic bitcoin adoption. According to him, the law would be used to acquire the nation’s U.S dollars. 

 

Image courtesy of Cointelegraph News/YouTube

Jet Encila

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Jet Encila

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