Boy, I chose the wrong week to
stop sniffing glue go on vacation. I’ve been visiting family since last Tuesday. As joyful as that vaxxed-up post-COVID reunion has been, I sure wish it hadn’t overlapped with the most significant single development in the history of cryptocurrency so far: the adoption of bitcoin as legal tender in El Salvador.
Plenty of naysayers have worked to pick apart the move since its announcement and implementation over the past week, and there are certainly many unknowns. Those include the basic logistical challenge posed by exchange rates and bitcoin’s slow and expensive on-chain transactions, which El Salvador will tackle with the help of the firm Strike. Another major question is whether Salvadoran President Nayib Bukele, who is wildly popular but has made authoritarian moves to consolidate power, is the ideal leader to take this dizzying first step.
But those details pale in comparison to the broad outlines: For the first time, a nation has adopted a currency that neither it nor any other single entity controls. This is particularly significant because El Salvador had previously used the U.S. dollar as its sole currency. The dollar will certainly still be widely used in the country, but adding bitcoin to the picture, in even a limited form, reduces the influence of the U.S. and other rich countries.
The backlash from establishment figures in the U.S. and Europe has been somewhat muted but obvious. You can absolutely smell the fear.
For instance, former President Donald Trump on Monday responded to the plan by saying: "Bitcoin, it just seems like a scam. I don’t like it because it’s another currency competing against the dollar ... I want the dollar to be the currency of the world. That’s what I’ve always said." Democratic Sen. Elizabeth Warren, without referencing El Salvador directly, chose the moment to attack cryptocurrency broadly.
The use of the dollar as a global medium of exchange and savings provides huge benefits to the U.S., and losing that dominance, whether to bitcoin or the yuan, would have major negative impacts on the U.S. domestic economy. It’s a fear that few U.S. leaders have articulated so explicitly with regard to bitcoin – but Trump, for better and worse, has a gift for saying out loud what a lot of other people are thinking.
The U.S. isn’t the only one signaling anxiety over El Salvador’s move. The International Monetary Fund chimed in Thursday morning, saying El Salvador’s plan raises “a number of macroeconomic, financial and legal issues that require very careful analysis.” This may sound anodyne enough, but when you recognize that the IMF is effectively a tool of economic coercion used by rich northern nations to bully developing countries in the global south, it takes on an ominous tone.
At the same time, bitcoin skeptics have latched on to the idea that 39-year-old Bukele is a nascent authoritarian. Bukele has indeed taken significant steps to weaken checks on his power, including firing judges and anti-corruption officials. The U.S. has also accused several of Bukele’s allies of corruption. Salvadorans nonetheless apparently adore their president, who has a steady approval rating near 90%, likely because they understand his actions in the context of El Salvador’s messy and bleak political history. At the same time, the legacy of U.S. engagement in Latin America, and in El Salvador specifically, provide plenty of reason to be skeptical of attempts to delegitimize the democratically elected president.
Let’s tackle the International Monetary Fund first. The IMF, which is dominated by advanced economies and consistently headed by Europeans, makes loans to developing countries in economic or financial crisis. Though founded with high ideals, since the 1970s the IMF has used these loans as a coercive tool to advance first-world interests as part of a neoliberal strategy that Naomi Klein termed “The Shock Doctrine.” The IMF has consistently tied its emergency loans to drastic economic “reforms” that usually amount to brutal austerity for working people and free rein for international (read: mostly American and European) corporations. It was without hyperbole that one repentant development bank operative titled his bestselling 2004 expose "Confessions of an Economic Hitman."
There has been fierce criticism of the IMF for more than two decades, but it has stubbornly stayed the course. In 2019, when Ecuador was in a severe economic slowdown, the IMF stepped in to loan it $4.2 billion. In exchange for that truly insulting pittance, the IMF demanded “modernization” policies that included privatizing public assets, stripping worker protections and cutting public spending by 6% over three years. The IMF knew and acknowledged these spending cuts would send Ecuador into a recession, increasing unemployment and poverty.
The most recent World Bank data on Ecuador’s economy is from 2019, so it’s still unclear how things played out in this case, but one can guess intentionally triggering a recession just before the coronavirus pandemic was … not ideal.
The same rapacious policies have been deployed, usually in a cookie-cutter fashion with little flexibility based on local conditions, in dozens of developing countries. Under the most repulsive of these provisions, the IMF even prohibited some countries from providing free education to children in the name of fiscal discipline.
The IMF argues these vampiric reforms produce long-term growth. Even if that is true, they inflict huge costs in both national sovereignty and global stability. In the most notorious example, it’s widely believed IMF bailout packages badly worsened the 1997 Asian financial crisis, because the agreements made it impossible for nations to stem short-term capital flight. (This is the version of events laid out, not in some radical political broadsheet, but in the Encyclopedia Britannica.) The contagion eventually spread as far as Brazil and Russia.
You can begin to see why the IMF might regard a developing nation’s adoption of an independent currency system as deserving of “very careful analysis,” as a spokesperson put it. For one thing, at least some of the pressure it’s able to exert on behalf of its Euro-American masters is based on their control of the global banking system, which bitcoin can bypass.
And, good heavens, let’s hope no developing nations so much as think about decentralized finance (DeFi) the next time they need a loan – that would just be awful. Remember all the hoops Ecuador jumped through for that $4.2 billion? The total capital on DeFi systems today is $59.4 billion. It is not a great leap to imagine a future in which the IMF is no longer the lender of last resort for countries in crisis. They can borrow directly from the rest of us, without submitting to destructive, anti-human “reforms.”
The question of Bukele’s authoritarianism is much less clear-cut. Some of his actions, including handing more power to the Salvadoran military at the expense of civilian institutions, have certainly been worrisome.
But, again, the broader context is crucial. Bukele began his political career as a member of the Farabundo Marti National Liberation Front, a party that grew out of a leftist guerrilla movement after the 1992 end of the country’s 12-year civil war. The FMLN was supported by the Soviet Union in its fight against a right-wing Salvadoran military regime, which regularly deployed paramilitary death squads to execute and terrorize civilians.
And here, prepare to be shocked, shocked: The Salvadoran regime’s campaign of terroristic repression was supported by $1 million to $2 million in aid per day from the United States of America. Such funding was part of the U.S. Cold War policy of using developing countries as proxy battlefields against the Soviet Union. Over 75,000 Salvadorans died in the conflict between 1980 and 1992 – many of them civilians, including six Jesuit priests, murdered by U.S.-backed forces.
Across Latin America, the mindset behind such policies has lingered, even with no USSR to fight. The U.S. has used innumerable brutal, cruel and devious tactics to interfere with and depose democratically-elected left-wing politicians – especially, it seems, those most beloved by their citizens.
This is ongoing today. The U.S., and particularly the Central Intelligence Agency, are known to have actively participated in the 2019 coup against Evo Morales, the democratically elected and hugely popular leftist leader of Bolivia. Morales, Bolivia’s first indigenous chief executive, was also a stunningly effective economic planner, dramatically cutting poverty and raising the standard of living in his country. Frankly, he’s lucky to be alive.
Even more egregious is recent reporting indicating that the CIA was an active player in the so-called “Lavo Jato” operation in Brazil. While officially framed as an “anti-corruption” campaign, many observers say Lavo Jato was also effectively a coup, this time against President Luis Inacio Lula da Silva, who remains extremely popular, with approval ratings over 80%, years after being deposed for supposed corruption.
Lavo Jato led directly to the empowerment of Jair Bolsonaro, a far-right ideologue who it does not seem unfair to describe as completely unhinged. Bolsonaro’s policies on everything from the Amazon rainforest to the coronavirus pandemic have done grievous harm to the Brazilian people, the Brazilian economy and the global environment.
Bukele’s resistance to anti-corruption measures should be seen in this grim context: In Latin America, “anti-corruption” is too often code for “an American plot to overthrow your government.” Bukele himself seemed to hint at this in his response to some of the corruption allegations, when he snarkily expressed shock that the investigation did not find a single case of corruption in the right-wing ARENA party that opposes him.
And these are just two horrifying recent examples – the U.S. has violently intervened in the domestic politics of Latin American countries at least 14 times since the beginning of the 20th century, according to a tally by the Associated Press. The term “banana republic” derives from America’s old habit of knocking over governments for the benefit of fruit companies - including the one now known as Chiquita Brands International. These various operations frequently involved the use of secret death squads, including the Contras in Nicaragua, whose operations were allegedly funded by the CIA’s direct involvement in international drug smuggling.
Again, you can see why a left-wing South American president might look for ways to reduce his country’s dependence on the U.S. dollar and the U.S.-controlled financial system. While death squads never go out of fashion, the increasing internationalization of banking and finance has added a subtler weapon to the imperialist arsenal. Adopting bitcoin is a first step towards loosening that death grip.
Bukele is not emphasizing this angle – and if you were in his shoes, would you? But you can bet it’s very much on his mind. Furthermore, you can bet your bottom dollar that other leaders of developing nations are thinking the same thing and, at the very least, watching to see how El Salvador’s move plays out over the coming months and years.
If it works to even a limited degree, they have every incentive to follow suit. Much attention has been focused on direct economic benefits that may accrue to El Salvador from its move toward bitcoin, such as by attracting more tech talent and investment, and those could wind up being compelling in themselves.
But the real upside might be the one that few dare say out loud: Used intelligently, bitcoin could be a significant tool for entire nations that want to shake off the yoke of the rich, shameless northern bullies that have cost them so much.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.