El Salvador recently became the first country to make Bitcoin legal tender. While the move may sound cutting edge, it really puts the savings and pensions of millions of Salvadorans at serious risk.
In an op-ed for Real Clear World, Matthew Rooney, Managing Director of the Bush Institute-SMU Economic Growth Initiative, and Cullum Clark, Director of the Bush Institute-SMU Economic Growth Initiative, outlined why El Salvador’s move to Bitcoin could devastate the country’s economy.
“The move is an ill-thought-out effort to introduce additional liquidity into the Salvadoran economy and escape the fiscal discipline that has characterized the country’s monetary policy since it adopted the U.S. dollar as its currency two decades ago.
Those 20 years for El Salvador have been a period of lower inflation and interest rates than its neighbors. However, dollarization has also constrained Salvadoran governments by preventing them from financing deficits by printing money.
Inflating the economy by printing more money can create the illusion of growth for a time. At least until people realize that the money in their pockets is worth less, so what seems like growing wealth is really growing poverty.”