West can’t afford to laugh at El Salvador’s bitcoin price pain
In 2017, Venezuela tried with limited success to sell oil in euros and yuan, after US sanctions banned any US entity buying its sovereign debt.
Africa’s largest economy, Nigeria, is being rocked by civil unrest as the naira collapsed to N532 against the US dollar on Monday.
Its decline hikes the cost of living for inhabitants of a nation that sells plenty of oil, but must pay more to import goods in US dollars. In response, cryptocurrency adoption is booming in Nigeria. In July, Fintech Zoom said 32 per cent of Nigeria’s population of 212 million now use crypto as a proxy for the US dollar’s value, despite the government trying to stamp it out.
The overall picture is that crypto’s rise in emerging economies is no joke. In March, investment bank Citi said crypto’s borderless design and lack of foreign-exchange risk could see it topple the US dollar as an international trade currency or primary means of payment between some global importers and exporters.
The petrodollar as a trading currency arrived in the 1970s after Saudi Arabia agreed to only sell oil in US dollars in exchange for the US providing security not just for Saudi Arabia, but across the Middle East. The deal created artificially strong demand for US dollars and enshrined its status as the reserve currency.
This history lesson might seem mundane and El Salvador’s decision slightly comical, but not so much in the context of crypto’s adoption as another embarrassing chapter in the West’s chaotic management of money.
In just 50 years since 1971 the world’s monetary system has delivered the collapse of Bretton Woods, the petrodollar, runaway inflation in the 1970s, the 1979 oil price shock and subsequent recession in the early 1980s, Latin American debt crisis of 1982, the Black Monday stockmarket crash of 1987, and the oil price shock of 1990 with accompanying recession.
Since then, inter alia, we’ve had the Asian financial crisis in 1997, dotcom bust of 2000, Argentina’s economic collapse in 2001, the GFC of 2009, subsequent eurozone and Greek debt crises of 2011-12, Russia’s financial crisis of 2014-16, and now the West’s wildest monetary policies yet – negative real interest rates as central banks race to devalue their currencies.
No wonder China doesn’t trust the West’s monetary system and emerging nations like El Salvador see nothing funny about bitcoin.
Tuning out the noise, the data shows the only real driver of bitcoin’s price since the GFC is central banks’ own creation of funny money through virtual zero interest rate policies on cash.
As a result the young, gullible and disenfranchised like crypto – their interest mobilised by another decentralised and revolutionary new power, social media.
The move of El Salvador’s Twitter-using 40-year-old President Bukele is just another symptom of this reality. It also means other emerging nations could adopt crypto as the coronavirus hit exposes the failings of Western monetary policy.
Read here about Ethereum price.
And here about markets data.