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."

AccessTimeIconJun 16, 2021 at 10:10 a.m. UTC
Updated Sep 14, 2021 at 1:11 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

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.



Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.