Why and how are the USA monitoring the adoption of cryptocurrencies in El Salvador?

Ever since El Salvador made Bitcoin an official currency within its territory, the country has been facing a campaign of distrust and surveillance from the United States. Without hiding their deep unease, the Joe Biden administration has implemented legal measures to protect the American financial system from the repercussions of the Salvadoran government’s decision. Why do the USA feel threatened, and what actions have they taken in response? Find all the answers in this article.

The adoption of BTC in El Salvador threatens the supremacy of the US dollar

It’s September 7, 2021. El Salvador has just made Bitcoin an official currency. For the IMF and the World Bank, “Salvadoran authorities should abandon their plans to increase the state’s exposure to Bitcoin.” To exert pressure on the Salvadoran president, the IMF has withheld $1.3 billion in aid intended for El Salvador.

On the other hand, the USA, fearing the impact of the unpredictable volatility of Bitcoin on the economy of the small Central American country, quickly went on high alert. Victoria Nuland, the Under Secretary of State for Political Affairs, met with the Salvadoran president to dissuade him, but to no avail. One thing is clear: El Salvador’s decision is causing discomfort.

El Salvador wants to replace the US dollar with BTC by 2040

To understand why the United States is concerned about Bitcoin adoption in El Salvador, we need to look at the ambitious program of the country’s president. By adopting BTC as legal tender, the president aims to:

• Boost the country’s economic growth by allowing the market to freely determine the exchange rate between BTC and the US dollar.
• Strengthen the integration of the underbanked Salvadoran population into the real economy.
• Attract foreign investors to this impoverished country.
• Emancipate itself from the US dollar and, by extension, the economic policy of the Federal Reserve by 2040.

In a video message, the forty-something president also pointed out that remittances from Salvadorans in the diaspora accounted for nearly 22% of the country’s GDP. 

He concludes that adopting Bitcoin as legal tender would bypass exchange fees and commissions, saving users millions of dollars.

The fear of destabilizing the US financial system

For the United States, it is clear that the adoption of Bitcoin in El Salvador is unwelcome. It is worth noting that this small, impoverished Central American country is the first in the world to make BTC an official currency.

This move could inspire other US states to consider breaking away from the dollar and the economic policy of the Federal Reserve. 

Considering that nearly 80% of global trade is conducted in US dollars, the adoption of Bitcoin as an official currency in the United States could contribute to the gradual de-dollarization of the world’s economies and the eventual end of the dollar’s reign.

President Nayib Bukele’s decision represents a threat to Washington, which senses the risk of destabilizing the US financial system. 

In fact, on April 4, 2022, Representative Norma J. Torres, together with Representative Rick Crawford, proposed a bill titled “Accountability for Cryptocurrency in El Salvador Act.” 

In a tweet on April 5, 2022, she stated that “El Salvador’s adoption of Bitcoin is not a thoughtful adoption of innovation but a reckless gamble that destabilizes the country.”

While acknowledging that El Salvador is an independent and autonomous democracy, Norma Torres asserts that “the United States must develop a plan to protect our financial systems from the risks of this decision.”

Crypto adoption in El Salvador: What is the assessment 2 years later?

Despite the criticism, the Salvadoran president remains unwavering in his Bitcoin agenda. At present, El Salvador holds over 2,381 bitcoins and has more than 212 Bitcoin ATMs spread across the country. 

Moreover, El Salvador now has a National Bitcoin Office established by decree and a financial education program, both aimed at accelerating adoption. The country has even passed a law regarding the issuance of “Volcano Tokens,” which are crypto-backed bonds.

That said, it is true that the government’s envisioned scenario is not unfolding as planned. Currently, only about 20% of the Salvadoran population uses Bitcoin, as the cryptocurrency is used for payment in only 2% of transactions.

Furthermore, contrary to optimistic predictions, after the cryptocurrency crash that caused Bitcoin to lose nearly 50% of its value, the Salvadoran public funds converted to BTC have also lost half of their value.

Perhaps we should heed the words of the country’s Finance Minister, Alejandro Zelaya, who claims, “This will not affect us. We haven’t sold any of our BTC holdings. (…) You can’t realize a loss until you sell. No financial decision-maker would make the decision to sell when things are going badly.”

Nevertheless, it remains to be seen if the country can still count on the support of creditors when its public debt risks skyrocketing overnight in line with the Bitcoin price.

For now, El Salvador shows no signs of weakness. In fact, the country is more confident than ever in the future of Bitcoin. 

As evidence, the government recently announced receiving commitments worth nearly $1 billion for the establishment of a Bitcoin mining factory named “Volcano Energy” in Santa Ana, in the northern part of the country.

With this infrastructure, El Salvador will be able to mine its own BTC, further accelerating adoption. The US nightmare is clearly far from over.

Conclusion 

The adoption of BTC in El Salvador has sparked a real battle between the Central American country and the United States. Washington’s concerns about the threat Bitcoin poses to the supremacy of the US dollar are palpable. While El Salvador seeks to strengthen its economy, promote financial inclusion, and break free from dollar control, the US is taking measures to protect itself and maintain its economic dominance. The future of this confrontation remains uncertain, but it is clear that the adoption of Bitcoin by El Salvador has already had significant repercussions on the crypto market and, above all, the international financial system. Only history will tell us how this situation will evolve and what impact it will have on international economic relations.