Frances Coppola is an economist with deep Keynesian studies. Here’s her unpopular opinion (in some circles):

My unpopular opinion (well, perhaps popular in some circles): the President of El Salvador’s decision to adopt BTC as an alternative to the USD for transactions in his country is actually quite sensible. 1/ 

The problem for “dollarised” countries is that because they do not have their own currency, they must dance to the monetary and fiscal tune of whichever country issues the country they use. I say monetary AND FISCAL because of the overriding need to maintain a positive BOP. 2/ 

But breaking the dollar dependence by issuing their own currency is not easy. Dollarised countries usually have a history of political and economic instability. Getting the world, or even their own people, to accept a currency issued by the goverment is hugely problematic. 3/ 

So adopting BTC potentially gives El Salvador the hard-currency peg and monetary discipline it needs, while breaking its monetary and fiscal policy dependence on the US. It’s not total monetary sovereignty, but it’s an improvement on the present situation. /4 

Adopting BTC is a reasonable solution for El Salvador and other “dollarised” countries with a history of instability which want to break free from US control. Does this mean that BTC is going to take over the world? No, emphatically it does not. 5/ 

Most countries don’t have that degree of dollar dominance, and developed countries don’t have that level of historical instability, either. There’s no need for them to adopt BTC either to escape from USD dominance or to establish monetary discipline. /6 

Now to the risk for El Salvador. Hard-currency pegs have a bad history in LatAm. All too often, the fiscal ambition of the government outstrips the ability of the productive economy to earn FX, and the peg eventually fails as FX reserves run out. 

El Salvador will have to attract BTC into the country to build up reserves (note I am not talking here about the $150m USD trust fund intended to absorb BTC volatility). The President appears to be trying to attract BTC whales, which is a reasonable strategy…. 

… but the country will also have to develop BTC-based export industries, otherwise money will be very, very tight. Continuing to use USD as a parallel currency is sensible, especially as many Salvadoreans use physical cash, but it could delay business adoption of BTC. 

the Government guarantee for BTC conversion for businesses should help, but there’s a huge degree of inertia – it may take a long time for the country to switch to majority use of BTC. Government focus should be on export industries rather than domestic consumers. 



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