11 votes

El Salvador makes Bitcoin legal tender

4 comments

  1. Akir
    Link
    I honestly do not think that this will end well. I do think that it's good that it makes them less dependant on the US Dollar, and I do like the idea that this might help to stabilize the value of...

    I honestly do not think that this will end well.

    I do think that it's good that it makes them less dependant on the US Dollar, and I do like the idea that this might help to stabilize the value of Bitcoin, but at the same time I fear this is the powder keg that's going to hurt their economy.

    8 votes
  2. guts
    Link
    El Salvador has become the first country in the world to officially classify Bitcoin as legal currency.

    El Salvador has become the first country in the world to officially classify Bitcoin as legal currency.

    6 votes
  3. [2]
    skybrian
    Link
    It seems that they will implement this using Strike, an app that uses Bitcoin's lightning network but it looks like it might effectively be centralized? You might compare with "mobile money" used...

    It seems that they will implement this using Strike, an app that uses Bitcoin's lightning network but it looks like it might effectively be centralized?

    You might compare with "mobile money" used in other places where few people have bank accounts, such as M-Pesa in Kenya and other African countries. So I would guess that it will work and being able to use Bitcoin is basically a gimmick.

    Based on a blog post, looks like Strike supports transactions using multiple currencies:

    Strike Global already incorporates trading with euros, pounds, Swiss francs and the Tether (USDT) and USDC stablecoins, bringing the Bitcoin asset and network to billions of people.

    Also:

    For users in countries with an underdeveloped banking system, Strike allows them to keep their funds in Bitcoin or Tether.

    Such choices! When Tether crashes I expect they will both crash.

    2 votes
    1. skybrian
      Link Parent
      I was wondering what backs M-Pesa. Here's a bit from a 2011 article. I wonder what's changed since then? I didn't find anything more recent.

      I was wondering what backs M-Pesa. Here's a bit from a 2011 article.

      The cash collected by M‐PESA in exchange for e‐float is deposited in bank accounts, called M‐PESA trust accounts. Originally, all funds were held in just one trust account at the Commercial Bank of Africa, but recently Safaricom has opened an account at two other commercial banks to diversify its risk. These
      accounts are very much like regular current accounts, with no restrictions on Safaricom’s access to funds. In turn, the banks face no special reserve requirements with regard to M‐PESA deposits, which are treated as any other current account deposit in terms of regulatory policy of the Central Bank.
      There is no explicit requirement, for example, for Safaricom to give notice of its intention to withdraw “large” quantities of cash at a given point in time. As M‐PESA continues to expand, and as these balances grow, the authorities may decide to revisit this arrangement. An alternative approach, adopted in the Philippines, is to institute a 100 percent reserve requirement vis‐à‐vis mobile banking deposit balances held in accounts at commercial banks. The success of M‐PESA has rested in part on the trust that customers have in one of Kenya’s most well‐respected private companies, the parent. But if faith in the banking system erodes, a run on M‐PESA could be sparked, thereby jeopardizing the position of the banks in which it holds deposited funds.

      Finally, as M‐PESA deposits enter the banking system, they only reduce cash in circulation to the extent that banks comply with or exceed official reserve requirements. But as e‐float becomes more widely acceptable as an easily transferable store of value, it will adopt the features of money. The practical implication of this is that M‐PESA could increase the effective money supply, with possible impacts on inflation and /or output. Of theoretical interest is the possibility that two monies could co‐exist in equilibrium. We will address these issues in more detail in future work.

      I wonder what's changed since then? I didn't find anything more recent.

      2 votes