El Salvador’s ‘stupid’ decision to adopt bitcoin as legal tender could collapse the economy, economist Steve Hanke said

FILE PHOTO: El Salvador President Nayib Bukele speaks at a news conference during a nationwide quarantine as El Salvador's government undertakes steadily stricter measures to prevent the spread of the coronavirus disease (COVID-19), in San Salvador, El Salvador May 26, 2020. REUTERS/Jose Cabezas
El Salvador President, Nayib Bukele.

  • El Salvador’s approval of bitcoin as legal tender could lead to an economic downturn, Steve Hanke predicted.
  • The economist described members of government who passed the bitcoin law as “stupid”.
  • He predicted bitcoin holders in Russia or China would target El Salvador to cash out their holdings.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

El Salvador’s move to classify bitcoin as legal currency has the potential to completely collapse its economy, Steve Hanke, professor of applied economics at Johns Hopkins University, said in a Kitco News interview on Tuesday.

After describing President Nayib Bukele and members of government who voted to pass the bitcoin law as “stupid,” Hanke raised doubts about whether the cryptocurrency could work smoothly for everyday use in a country where most citizens don’t have bank accounts.

The economist, who served on former President Ronald Reagan’s council of economic advisers in the 1980s, suggested criminal interests may have helped bring about the Latin American nation’s adoption of cryptocurrency.

“The criminal element wants to be able to get in and actually obtain real legal greenbacks,” he said. “They want greenbacks. And greenbacks are, in fact, the legal tender and money in El Salvador.”

Hanke predicted bitcoin holders in Russia or China would exploit El Salvador’s citizens to cash out their holdings, ultimately draining the country of US dollars.

“It has the potential to completely collapse the economy, because all the dollars in El Salvador could be vacuumed up and there’ll be no money in the country,” he said. “They don’t have a domestic currency.”

Governments and central banks around the world will be watching El Salvador’s experiment to see whether bitcoin becomes part of daily life for payments and remittances.

But Hanke called the idea crazy, saying the digital asset will need to be converted to US dollars to be used anywhere. “You’re not going to pay for your taxi ride with a bitcoin, it’s ridiculous,” he said.

“If grandma is down in El Salvador waiting for her remittances, and you want to send it with bitcoin, that’s fine. What does she do? She has to go to the ATM to get dollars, because that’s the only way you can buy something,” Hanke said.

But the bitcoin bill mandates every business to accept the cryptocurrency as legal tender, unless it doesn’t have the technology to enable such a transaction. Further, the government is considering whether companies should pay salaries in bitcoin.

JPMorgan said last week that it was difficult to see any benefits of adopting bitcoin as a second form of legal tender, and the move could risk relations with the International Monetary Fund.

Read More: Deirdre Dunn started her career winning a hamburger-eating contest on the trading floor at Goldman Sachs. Now she’s one of Wall Street’s star traders at Citigroup.

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Bitcoin rises back above $36,000 as El Salvador declares it legal tender and inflation concerns persist

2021 03 13T111735Z_1_LYNXMPEH2C07M_RTROPTP_4_CRYPTO CURRENCY BITCOIN TREASURY.JPG
Bitcoin has lost nearly half its value since April.

  • Bitcoin rose back above $36,000 Wednesday, boosted by El Salvador’s move to make the cryptocurrency legal tender.
  • Persistent inflationary pressures may have also encouraged investors to add exposure to the digital asset.
  • Once bitcoin breaks through $38,000, it may signal an upward trend towards $47,000, an expert said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The price of the world’s most popular cryptocurrency rose back above $36,000 Wednesday, boosted by El Salvador’s historic move in becoming the first country to establish bitcoin as a legal tender. Persistent inflationary pressures may have also encouraged investors to flock to the asset, which some view as an inflation hedge.

Bitcoin rose to $36,840 at around 1:24 p.m. ET Wednesday, rising 17% from the intraday low the previous day. It has lost almost 50% of its value since hitting an all-time high of nearly $65,000 in April.

“This current market pause is not unexpected. Everyone needs time to assess and digest what the community has built,” Paolo Ardoino, CTO of Bitfinex, a cryptocurrency exchange said. “I’m still extremely bullish in the long term about bitcoin and the long-term fundamentals and use cases of the technology.”

Tim Frost, founder of fintech firm Yield, said if bitcoin can break through $38,000, it may signal an upward trend toward its medium-term average of around $47,000 and potentially beyond.

The congress of El Salvador on Wednesday voted in favor of bitcoin becoming legal tender in the country, cheered on by President Nayib Bukele. Once the law passes through the legislative processes, bitcoin will have the same status as the US dollar – the country’s current national currency.

Bitcoin by then will automatically and immediately be converted into US dollars upon use.

Meanwhile, investors are anticipating US Consumer Price Index data on Thursday, which is expected to show inflation picked up faster than April’s pace, which was already the highest reading since 2008. The European Central Bank will also meet the same day.

Several economists including those at Deutsche Bank have said inflation will make a comeback if the Federal Reserve sticks to its current policy of keeping interest rates historically low.

“We expect inflationary pressures to re-emerge as the Fed continues with its policy of patience,” the bank’s economists on Monday said. “It may take a year longer until 2023 but inflation will re-emerge.”

Beyond these, John Wu, president of Ava Labs, the team behind altcoin avalanche, said that as bitcoin becomes more mainstream thanks to institutional adoption, the more closely it becomes correlated to traditional asset classes.

“Bitcoin was the first crypto to feel this impact and begin to recover,” Wu said. “We’re now seeing it ripple through the rest of the crypto markets.”

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The president of El Salvador says the country is exploring using geothermal energy from volcanoes to mine bitcoin following its decision to make the cryptocurrency legal tender

El Salvador bitcoin
A bitcoin sign in El Salvador.

El Salvador’s president Nayim Bukele took to Twitter on Wednesday for yet another big bitcoin announcement.

This time, Bukele said that he has instructed the president of the country’s state-owned geothermal electric company, LaGeo SA de CV, to “put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos.”

The move comes after the country passed a law to make bitcoin legal tender on Wednesday via a supermajority (62 votes out of 84 possible).

Bitcoin’s price rose roughly 10% on Wednesday to trade around $36,000 per coin after the bullish news broke.

Bitcoin mining’s energy-intensive nature has led critics to question its environmental impact over the past few years.

According to data from Cambridge, the bitcoin network’s total energy consumption represents about 0.53% of total global energy consumption, and more than 85% of the energy consumed is used in the mining process.

Critics have argued bitcoin mining could exacerbate climate change, while others, including Cathie Wood of ARK Invest, have said that bitcoin’s power use will only help boost the adoption of renewable mining and solar power.

In other crypto news, Coindesk reported Chinese consumers are currently unable to search for popular cryptocurrency exchanges including Binance, OKEx, and Huobi on popular Chinese search engines in a sign of potential censorship.

China has been cracking down on cryptocurrency mining for some time, even going so far as to block the social media accounts of prominent crypto influencers over the weekend.

Last month, crypto miners were forced to halt operations in China after the country implemented tighter regulations. Chinese government officials have previously stated they would target the crypto industry to try to reach net-zero emissions by 2060.

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Bitcoin rises back above $35,000 as El Salvador declares it legal tender and inflation concerns persist

2021 03 13T111735Z_1_LYNXMPEH2C07M_RTROPTP_4_CRYPTO CURRENCY BITCOIN TREASURY.JPG
Bitcoin has lost nearly half its value since April.

  • Bitcoin rose back above $35,000 Wednesday, boosted by El Salvador’s move to make the cryptocurrency legal tender.
  • Persistent inflationary pressures may have also encouraged investors to add exposure to the digital asset.
  • Once bitcoin breaks through $38,000, it may signal an upward trend towards $47,000, an expert said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The price of the world’s most popular cryptocurrency rose back above $35,000 Wednesday, boosted by El Salvador’s historic move in becoming the first country to establish bitcoin as a legal tender. Persistent inflationary pressures may have also encouraged investors to flock to the asset, which some view as an inflation hedge.

Bitcoin rose to $35,349 at around 8:14 a.m. ET Wednesday, rising 12% from the intraday low the previous day. It has lost almost 50% of its value since hitting an all-time high of nearly $65,000 in April.

“This current market pause is not unexpected. Everyone needs time to assess and digest what the community has built,” Paolo Ardoino, CTO of Bitfinex, a cryptocurrency exchange said. “I’m still extremely bullish in the long term about bitcoin and the long-term fundamentals and use cases of the technology.”

Tim Frost, founder of fintech firm Yield, said if bitcoin can break through $38,000, it may signal an upward trend toward its medium-term average of around $47,000 and potentially beyond.

The congress of El SalvadorWednesday voted in favor of bitcoin becoming legal tender in the country, cheered on by President Nayib Bukele. Once the law passes through the legislative processes, bitcoin will have the same status as the US dollar – the country’s current national currency.

Bitcoin by then will automatically and immediately be converted into US dollars upon use.

Meanwhile, investors are anticipating US Consumer Price Index data on Thursday, which is expected to show inflation picked up faster than April’s pace, which was already the highest reading since 2008. The European Central Bank will also meet the same day.

Several economists including those at Deutsche Bank have said inflation will make a comeback if the Federal Reserve sticks to its current policy of keeping interest rates historically low.

“We expect inflationary pressures to re-emerge as the Fed continues with its policy of patience,” the bank’s economists on Monday said. “It may take a year longer until 2023 but inflation will re-emerge.”

Read the original article on Business Insider

In race for vaccines, US neighbors see chance to play Washington and Beijing against each other

China El Salvador Sinovac CoronaVac Covid-19 coronavirus vaccine
Workers unload the first batch of Sinovac vaccines in San Luis Talpa, El Salvador, March 28, 2021.

  • Latin America has been hit hard by COVID-19, and leaders there are rushing to vaccinate their populations.
  • Broader competition between the US, China, and Russia is seen as influencing vaccine distribution.
  • Some leaders in Latin America appear to be trying to use that competition to advance their own interests.
  • See more stories on Insider’s business page.

Latin America has been hit hard by the coronavirus pandemic, and as countries there scramble to vaccinate residents, two leaders are looking to gain geopolitical leverage.

Presidents Juan Orlando Hern├índez of Honduras and Nayib Bukele of El Salvador have both been criticized by US officials and civil society – Hern├índez over drug-trafficking connections and Bukele for what is seen as an ongoing power grab.

While the US government has said it will continue to work with both governments, their leaders appear to be trying to fend off further scrutiny.

To that end, Hern├índez said on May 11 that he was considering setting up a trade office with China to get more vaccines, following Beijing’s suggestion that he pursue a “diplomatic bridge” to secure more doses.

Such a move would be a dramatic shift, as Honduras is one of the few countries that still officially recognizes Taiwan, which China has sought to further isolate in recent years by peeling away its allies.

honduras
Honduran President Juan Orlando Hernández at a campaign rally, November 12, 2017.

Hern├índez’s comments came a month after Bukele said Beijing would donate 150,000 Sinovac vaccines on top of the 2 million El Salvador had already purchased.

Two shipments of Chinese vaccines arrived in El Salvador in April, and Bukele has given thousands of vaccines to towns in Honduras.

Efforts by leaders in the region to get vaccines reflect their “desperation” to stanch the pandemic more so than ideological leanings, Benjamin Gedan, deputy director of the Latin American program at the Wilson Center, told Insider in an email.

But Hernández and Bukele in particular seem to be seeking other benefits.

After Hern├índez’s brother’s conviction in the US on drug charges, Hern├índez’s “flirtation with China is a transparent attempt to persuade the Biden administration and federal prosecutors to stand down,” Gedan, a former director for South America on the National Security Council, tweeted last week.

In El Salvador, “Bukele’s recent overtures to Beijing coincide with a deterioration of relations with the US … due to Washington’s criticism over Bukele’s increasing authoritarianism,” said Michael Paarlberg, a professor and expert in Latin American politics at Virginia Commonwealth University.

“The Sinovac deal is a publicity boost for Bukele,” Paarlberg told Insider. “Bukele also wishes to signal to the US that El Salvador has other options.”

China’s aid to those countries indicates that “the balance is tilting in China’s favor,” Global Times, a tabloid run by the Chinese Communist Party, said last week.

‘China takes the US seriously’

China El Salvador Covid-19 coronavirus vaccine
Chinese Ambassador to El Salvador Ou Jianhong, left, and El Salvador Minister of Health Francisco Alabi in San Salvador, March 28, 2021.

China is supplying vaccines to at least 12 countries in the region – including 85% of those received by Chile, 82% by El Salvador, and 75% by both Brazil and Uruguay – R. Evan Ellis, Latin America research professor at the US Army War College, told the House Foreign Affairs Committee this month.

Argentina “regularly sends planes to Beijing to collect doses,” and Colombia, a longtime US ally, has ordered 7.5 million doses, Gedan said.

Governments in the region “will gladly” accept the US’s vaccines as its distribution effort expands, Gedan told Insider.

“Even so, China’s ‘vaccine diplomacy’ is increasing Beijing’s influence at the US’s expense,” Gedan said, adding that those deliveries “do more than burnish” China’s standing as it faces criticism elsewhere.

Beijing has sought to use that favorable sentiment to advance its interests.

After promises of Chinese vaccines, Brazil and the Dominican Republic reversed commitments to keep Chinese firm Huawei out of their 5G telecommunications networks, Ellis said.

Beijing also tried to use vaccines to pull away another Taiwanese ally, Paraguay, which Taiwan thwarted by helping Paraguay get vaccines elsewhere. (Hernández said he asked Taipei to press the US for help finding more vaccines for Honduras.)

USAID Honduras Covid-19 coronavirus aid
Honduran troops with diagnostic testing kits donated by the US Agency for International Development and the International Organization for Migration, in Tegucigalpa, April 29, 2020.

Juan Gonzalez, senior director for the Western Hemisphere on the National Security Council, said Monday that leaders in the region had asked if the US would “see negatively” their acceptance of Russian and Chinese vaccines.

“The answer is no because we need to vaccinate these populations, full stop, no conditions,” Gonzalez said in response to a question from Insider at Florida International University’s Western Hemisphere security conference.

The US has been criticized for not coordinating with Russia and China on vaccine distribution, but Gonzalez said Monday that the Biden administration was “concerned with” their attempts to use vaccines to pressure countries, citing the case of Paraguay.

“Frankly, that’s not what our citizens want from us. So we don’t see it as a competition, because when the United States pivots … in terms of our plans to share vaccines, the United States is going to be the global leader in the pandemic response, and we’re not going to ask for anything in return for those vaccines,” Gonzalez added.

Despite Chinese inroads in Latin America, Honduras and El Salvador likely won’t be able to replace Washington with Beijing. In addition to geographic proximity, both have deep political, economic, and cultural ties to the US.

Bukele’s predecessor already recognized Beijing over Taipei, and while Chinese investment there has benefited some well-connected elites, many of those projects have stalled, some due to US objections, Paarlberg said.

“Even if Bukele cares more about China than the US, China cares more about the US than it does El Salvador. And when the US puts up serious resistance … China takes the US seriously,” Paarlberg told Insider.

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A top Facebook exec told a whistleblower her concerns about widespread state-sponsored disinformation meant she had ‘job security’

facebook ceo mark zuckerberg
In this April 11, 2018, file photo, Facebook CEO Mark Zuckerberg pauses while testifying before a House Energy and Commerce hearing on Capitol Hill in Washington.

  • Facebook let dictators generate fake support despite employees’ warnings, the Guardian reported.
  • Whistleblower Sophie Zhang repeatedly raised concerns to integrity chief Guy Rosen and other execs.
  • But Rosen said the amount of disinformation on the platform meant “job security” for Zhang.
  • See more stories on Insider’s business page.

Facebook allowed authoritarian governments to use its platform to generate fake support for their regimes for months despite warnings from employees about the disinformation campaigns, an investigation from the Guardian revealed this week.

A loophole in Facebook’s policies allowed government officials around the world to create unlimited amounts of fake “pages” which, unlike user profiles, don’t have to correspond to an actual person – but could still like, comment on, react to, and share content, the Guardian reported.

That loophole let governments spin up armies of what looked like real users who could then artificially generate support for and amplify pro-government content, what the Guardian called “the digital equivalent of bussing in a fake crowd for a speech.”

Sophie Zhang, a former Facebook data scientist on the company’s integrity team, blew the whistle dozens of times about the loophole, warning Facebook executives including vice president of integrity Guy Rosen, airing many of her concerns, according to the Guardian.

BuzzFeed News previously reported on Zhang’s “badge post” – a tradition where departing employees post an internal farewell message to coworkers.

But one of Zhang’s biggest concerns was that Facebook wasn’t paying enough attention to coordinated disinformation networks in authoritarian countries, such as Honduras and Azerbaijan, where elections are less free and more susceptible to state-sponsored disinformation campaigns, the Guardian’s investigation revealed.

Facebook waited 344 days after employees sounded the alarm to take action in the Honduras case, and 426 days in Azerbaijan, and in some cases took no action, the investigation found.

But when she raised her concerns about Facebook’s inaction in Honduras to Rosen, he dismissed her concerns.

“We have literally hundreds or thousands of types of abuse (job security on integrity eh!),” Rosen told Zhang in April 2019, according the Guardian, adding: “That’s why we should start from the end (top countries, top priority areas, things driving prevalence, etc) and try to somewhat work our way down.”

Rosen told Zhang he agreed with Facebook’s priority areas, which included the US, Western Europe, and “foreign adversaries such as Russia/Iran/etc,” according to the Guardian.

“We fundamentally disagree with Ms. Zhang’s characterization of our priorities and efforts to root out abuse on our platform. We aggressively go after abuse around the world and have specialized teams focused on this work,” Facebook spokesperson Liz Bourgeois told Insider in a statement.

“As a result, we’ve already taken down more than 100 networks of coordinated inauthentic behavior. Around half of them were domestic networks that operated in countries around the world, including those in Latin America, the Middle East and North Africa, and in the Asia Pacific region. Combatting coordinated inauthentic behavior is our priority. We’re also addressing the problems of spam and fake engagement. We investigate each issue before taking action or making public claims about them,” she said.

However, Facebook didn’t dispute any of Zhang’s factual claims in the Guardian investigation.

Facebook pledged to tackle election-related misinformation and disinformation after the Cambridge Analytica scandal and Russia’s use of its platform to sow division among American voters ahead of the 2016 US presidential elections.

“Since then, we’ve focused on improving our defenses and making it much harder for anyone to interfere in elections,” CEO Mark Zuckerberg wrote in a 2018 op-ed for The Washington Post.

“Key to our efforts has been finding and removing fake accounts – the source of much of the abuse, including misinformation. Bad actors can use computers to generate these in bulk. But with advances in artificial intelligence, we now block millions of fake accounts every day as they are being created so they can’t be used to spread spam, false news or inauthentic ads,” Zuckerberg added.

But the Guardian’s investigation showed Facebook is still delaying or refusing to take action against state-sponsored disinformation campaigns in dozens of countries, with thousands of fake accounts, creating hundreds of thousands of fake likes.

And even in supposedly high-priority areas, like the US, researchers have found Facebook has allowed key disinformation sources to expand their reach over the years.

A March report from Avaaz found “Facebook could have prevented 10.1 billion estimated views for top-performing pages that repeatedly shared misinformation” ahead of the 2020 US elections had it acted earlier to limit their reach.

“Failure to downgrade the reach of these pages and to limit their ability to advertise in the year before the election meant Facebook allowed them to almost triple their monthly interactions, from 97 million interactions in October 2019 to 277.9 million interactions in October 2020,” Avaaz found.

Facebook admits that around 5% of its accounts are fake, a number that hasn’t gone down since 2019, according to The New York Times. And MIT Technology Review’s Karen Hao reported in March that Facebook still doesn’t have a centralized team dedicated to ensuring its AI systems and algorithms reduce the spread of misinformation.

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