Steve Hanke has warned that El Salvador’s adoption of Bitcoin (BTC) as legal tender has the potential to “completely collapse the economy.” He said this during an interview yesterday with streaming financial news provider Kitco News.
Steve Hanke has previously described BTC as a speculative asset “with a fundamental value of zero” and in April the 78-year-old tweeted “cryptocurrencies are the future of money. Bitcoin is not.”
During the interview, the renowned economist described the elected representatives in El Salvador who voted in favour of President Nayib Bukele’s Bitcoin law as “in a word, stupid” and questioned how BTC could function as a legal tender in day-to-day transactions, in a country where most citizens rely on cash. He had this to say on the matter, “You’re not going to pay for your taxi ride with a Bitcoin. It’s ridiculous […] You’ve got 70% of the people in El Salvador don’t even have bank accounts.”
The university professor noted that BTC holders from regions such as Russia and China could now target El Salvador to cash out their holdings, essentially draining the country of its U.S. dollars. He stated, “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. They don’t have a domestic currency.”
Steve Hanke is a professor of applied economics at Johns Hopkins University. Known for his work as a currency reformer in emerging-market countries such as Albania, Argentina, Bulgaria, Bosnia, and Herzegovina, Ecuador. He has served as an adviser to heads of state in countries throughout Asia, South America, Europe, and the Middle East. Steve Hanke also served as a senior economist under President Ronald Reagan’s administration from 1981 to 1982.
JP Morgan had echoed similar sentiments but in a better language, stating that it was difficult to see any “tangible economic benefits associated with adopting Bitcoin as the second form of legal tender, and it may imperil negotiations with the IMF.”
However, The Central American Bank for Economic Integration (CABEI) does not share the view of Steve Hanke and JP Morgan, stating that El Salvador’s adoption of BTC is innovative and “creates many spaces and opportunities.” The multinational bank also revealed that it will be forming a technical advisory group to aid El Salvador in its transition to using Bitcoin as legal tender.
Professor Hanke speculated that “dark forces are clearly behind this in El Salvador, who want to use Bitcoin to get their hands on U.S. dollars.” He described remittances across borders in Bitcoin as “nonsensical,” as he thinks the asset will need to be converted instantly to dollars to be able to use it.
“If grandma is down in El Salvador, waiting for her remittances and you want to send Bitcoin like that, it’s fine, but what does she do? She has to go to the ATM to get dollars because that’s the only way you can buy something.”
Steve Hanke’s opinion of El Salvador’s move is similar to the opinion of David Gerard who wrote an article in Foreign Policy. David Gerard speculated that as El Salvador can’t print U.S. dollars, its adoption of BTC may be part of a move to source U.S. dollar liquidity from its citizens to pay back foreign debts.
Bitcoin is trading at $40,040, up 0.45% for the day, as of the time of writing this report.