El Salvador’s Bukele Is “Playing With Fire” By Ignoring the World Bank and International Monetary Fund’s Warnings About Bitcoin, According to Renowned Economist Steve Hanke.
Steve Hanke, an applied economics professor at John Hopkins University, has warned that El Salvador’s adoption of Bitcoin as legal cash might result in monetary turmoil and economic catastrophe. El Salvador, he warns, will be “burned” if it continues with the execution of its Bitcoin Law, which is scheduled to take effect in September.
Hanke made this point in a recent tweet and expanded on it in a recent National Review article. The piece, titled “El Salvador’s Road to Currency Chaos and Economic Collapse,” explained why he believes President Nayib Bukele’s strategy will mark the Central American country’s demise.
The legal concerns he raises mirror those of the World Bank, the International Monetary Fund (IMF), and the United States. Additionally, the Department of State has already stated. The lecturer emphasizes how each of these organizations has given warnings to the country about the potential consequences of their new law, and how Nayib Bukele’s deafening silence could have consequences.
In June, two IMF officials, Tobias Adrian Rhoda Weeks-Brown and Tobias Adrian Weeks-Brown warned that El Salvador’s Bitcoin law might result in extremely volatile commodities prices. Additionally, they highlighted the heightened possibility of bitcoin assets being utilized in violation of anti-money laundering rules or to finance terrorism.
The Financial Action Task Force (FATF), the worldwide anti-money laundering and counter-terrorist financing authorities, also expressed similar comments over the country’s move. El Salvador historically maintained an unblemished record with the FATF. That may change if the Bitcoin law is implemented, as the regulatory body demands certain Know Your Customer (KYC) standards for the use of digital currency, which El Salvador may not be able to achieve when their Bitcoin policy is implemented.
Additionally, the economist cites President Bukele’s authoritarian tendencies as a reason for the policy’s persistence. Hanke believes the law is attempting to impose Bitcoin on the country by making it a mandatory tender. According to him, while Bukele has garnered praise from the bitcoin world, El Salvadorians appear to embrace the policy only on the basis of what Bukele says, not on its merits. Hanke concurs with the World Bank’s assessment, stating that the country’s present legal money, the US dollar, has worked well and continues to do so.
Similarly, the article notes that the market was signaling that El Salvador’s decision was a mistake. In what may be described as a market retreat, the country’s bonds fell precipitously following the law’s implementation, and the country’s international credit rating was also reduced.
“The markets are telling us that Bukele’s authoritarian tendencies and outlandish cryptocurrency ideas will result in currency turmoil and economic collapse,” he adds, adding that the result will be a larger influx of immigrants from another failing Central American country to the United States.
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