Adopting Bitcoin as Legal Tender Could Ruin El Salvador's Economy, Economist Says

Bitcoin holders elsewhere could suck up all the dollars in El Salvador "like a vacuum cleaner."

Jun 16, 2021 at 10:10 a.m. UTC
Updated Sep 14, 2021 at 1:11 p.m. UTC

El Salvador's adoption of bitcoin as legal tender could cause its economy to collapse, according to Steve Hanke, an economist and professor at Johns Hopkins University.

  • The economist told Kitco News in an interview Tuesday that the decision by El Salvador parliament was "stupid."
  • Hanke argued that the "dollarization" of the country's economy – El Salvador uses the U.S. dollar as its currency – could lead to bitcoin holders elsewhere, including in Russia, China or Iran, "sucking up all the dollars in El Salvador like a vacuum cleaner."
  • "All the cash in El Salvador that's in dollars could be sucked up in a short matter of time," he said.
  • Hanke has previously tweeted that bitcoin would not bring down the cost of remittances, as it costs 8% to cash out bitcoin at an ATM, compared with the 0%-4% charged by Western Union or MoneyGram.
  • The counterargument is that El Salvadorans could spend bitcoin directly without needing to convert it into dollars.
  • "Lots of luck," Hanke said. "There's no way [that's] going to happen, period."
  • The economist is a crypto skeptic, comparing the market with the Dutch tulip bubble. Still, he did join the board of crypto startup AirTM in 2018.


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