157 Interactions, 2 Today
Steve Hanke criticised El Salvador’s acceptance of Bitcoin as legal money, questioning how Bitcoin would operate in day-to-day transactions.
Steve Hanke, a Johns Hopkins University professor of applied economics, has cautioned that El Salvador’s recent acceptance of Bitcoin (BTC) as legal money has the potential to “completely collapse the economy.”
Steve Hanke served as a senior economist under President Ronald Reagan administration from 1981 to 1982. 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.”
Speaking with streaming financial news provider Kitco News on June 15, the university professor noted that BTC hodlers 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:
“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. ”
During the interview, the economist described the elected representatives in El Salvador who voted in favor 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.
“You’re not going to pay for your taxi ride with a Bitcoin. It’s ridiculous […] You’ve got 70 percent of the people in El Salvador don’t even have bank accounts,” he said.
On June 11, JPMorgan echoed similar sentiments but in more measured language, with the firm stating in a client note that it was difficult to see any “tangible economic benefits associated with adopting Bitcoin as a second form of legal tender, and it may imperil negotiations with the IMF. ”
However, the Central American Bank for Economic Integration (CABEI) disagrees, stating Wednesday that El Salvador’s acceptance of BTC is creative and “creates many spaces and opportunities.”
The global bank also announced the formation of a technical advisory committee to assist El Salvador in its transition to Bitcoin as legal money.
Professor Hanke claimed that “dark forces” in El Salvador are “clearly behind this,” and that they seek to utilise Bitcoin to obtain US money.
Remittances across borders in Bitcoin, according to the economist, are “nonsensical,” since the asset will need to be instantaneously changed to dollars in order to be used.
“It’s fine if grandma is in El Salvador waiting for her remittances and you want to send Bitcoin like that, but what does she do? “She has to go to the ATM to get money because that’s the only way to buy something,” Hanke explained. Businesses in El Salvador, on the other hand, will be required to take Bitcoin.
An article in Foreign Policy by scathing Bitcoin critic David Gerard, author of the book Attack of the 50 Foot Blockchain, speculated that because El Salvador cannot print US dollars, its adoption of BTC could be part of a move to source US dollar liquidity from its citizens in order to repay foreign debts.