Last Monday the big news came from El Salvador that they are planning to establish a so-called “Bitcoin city” for which they want to raise 1 billion dollars (about 870 million euros) through a bond round. They will use part of that money to set up the city’s infrastructure and half of which will be used to buy more bitcoin for the country’s reserves.
At about the same time, the IMF issued a damning report on the adoption of bitcoin as legal tender by El Salvador. What makes this an especially interesting development is that, if the bond round proves to be a success, El Salvador will no longer be dependent on the IMF at all. Bitcoin could thus provide an opportunity for countries like El Salvador to circumvent the “IMF regime”.
The role of the IMF and the alternative bitcoin
The combination of bitcoin as legal tender and the bond round they are currently holding on a stock exchange platform that is completely separate from the financial system is logically a combination for the IMF that they applaud. This threatens the dominant position of this important global financial body. If countries like El Salvador are no longer dependent on the grace of the IMF, they will be able to raise money completely autonomously. Without the consequences and rules that the IMF normally attaches to this.
Using the potential of the bitcoin price increase to their advantage, El Salvador can improve infrastructure within the country without relinquishing control. In the current system, the IMF is ultimately in charge. After all, the IMF has a claim on the infrastructure of the countries that have been financed with its aid.
Should the idea of El Salvador and the Bitcoin city become a success, it is inevitable that similar countries will try to follow the same path. Which is not a good prospect for the IMF’s authority in the long run. What is special about the IMF is that it is an institution that was not created through a democratic process. What we see here is a sovereign country for the first time questioning the authority of the IMF.
El Salvador is like a cat in a corner
If you think about it more deeply, it is not at all surprising that a country like El Salvador is now looking at alternatives to finance itself. For years, El Salvador has been at the bottom of the ladder of the global economy and in that sense it has little to lose. In that regard, the comment from the Western world on the country’s new bitcoin strategy is strange.
For years, the US dollar has been the currency of service in El Salvador and the country has in fact been disadvantaged by the money printing system of the US central bank. Where they use the money in the United States to finance the infrastructure of the country, El Salvador partially pays the bill through inflation.
It is not surprising that they are now approaching it in a different way. Bitcoin is a money system in which no one has the power to just print new units. Objectively speaking, a much fairer way to run a monetary system, and not a bad investment considering Bitcoin’s performance against the US dollar over the past 12 years. In any case, this development will have a very interesting tail.
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