# El Salvador ### Excellent thread by [[Alex Gladstein]] just prior to the [[Bitcoin]] rollout in [[El Salvador]] https://twitter.com/gladstein/status/1434636006632747009?s=19 1/ As Tuesday's Bitcoin legal tender law looms for more than 6 million Salvadorans, many if not most of them fear a big monetary change. This is partly because of the dollarization which occurred exactly 20 years ago, in a similarly rushed, top-down way 🧵 🇸🇻 ![[20210906_110635.jpg]] 2/ Last week I attended the anti-Bitcoin law protest in San Salvador. This is the secretary of a union for judicial employees. She was against the law for many reasons, but a big one was that last time the govt changed the money system in 2001, it was bad for the lower classes. ![[20210906_110658.jpg]] 3/ Dollarization was fairly unique in El Salvador's case. The country wasn't experiencing high inflation, or any kind of economic crisis. But policymakers said it would help bring down interest rates and fuel the banking sector. Which it did. But it had unintended consequences. ![[20210906_110725.jpg]] 4/ This 2004 paper shows how dollarization had a negative impact on El Salvador's poor. The process had a striking similarity in suddenness to this year's Bitcoin law: just 39 days passed between the initial announcement and implementation: https://www.jstor.org/stable/4141619 ![[20210906_110813.jpg]] 5/ At first, one might struggle to see how dollarization could be bad. Why wouldn't a country benefit from moving to a stronger currency? Well, one surprising reason it was a painful experience for many was the result of the new exchange rate of 8.75 colones per dollar. ![[20210906_110840.jpg]] 6/ 21% of Salvadorans couldn't read or write, much less do conversions in their head. So they would fall prey to a system where what *used* to cost seven colones might now be rounded up to one dollar. From seven colones to a dollar is 25% inflation. ![[20210906_110904.jpg]] 7/ There was also the psychological effect of ditching a national currency, familiar to and even loved by many, for the currency of a foreign power that had backed a brutal dictatorship in the 1980s that committed unimaginably bad war crimes like these: https://www.nytimes.com/1982/01/27/world/massacre-of-hundreds-reported-in-salvador-village.html 8/ By 2007, as this @latimes article then reported, many unbanked small business owners were still crushed by dollarization, having never recovered. The stories here are powerful, and one of the women interviewed even called the dollar a "curse": https://www.latimes.com/archives/la-xpm-2007-aug-04-fi-dollarize4-story.html?_amp=true&__twitter_impression=true 9/ This is Mama Rosa, one of the first vendors in El Zonte to start accepting Bitcoin back in 2019. She is the mother of @jorgebitcoinES, a Bitcoin Beach founder. When I asked her about dollarization, she grimaced, as if someone had hurt her. She said it had been very painful. ![[20210906_111024.jpg]] 10/ Dollarization was brought up by many of the protestors I spoke to in San Salvador. They had other legitimate fears, of course: virtually no one knows what Bitcoin is, and the government is being highly opaque with its roll-out plans and has provided very little education. ![[20210906_111050.jpg]] 11/ As you can see here, another big fear from critics is that the government is going to use Bitcoin to launder money or steal from the people. This is not an unreasonable fear, given that the last three Salvadoran presidents all looted the country. ![[20210906_111112.jpg]] 12/ More than anything, it seems that out of the $200M+ being spent on: the BTC rollout, convertibility trust (to ensure merchants who accept BTC don't need to touch it + can just receive $), and ATMs, people don't yet grok Bitcoin and think it's a waste. https://bitcoinist.com/el-salvadors-legislative-assembly-approves-key-150m-bitcoin-trust/ 13/ This is totally reasonable and shows in recent polls, where virtually all respondents did not agree with such a mandate, and most had unfavorable views of BTC. Interview 100 people in any random town in America or China or Brazil today and you'd likely get similar results ![[20210906_111156.jpg]] 14/ The lack of knowledge and misinformation being spread among the protestors was staggering. The union secretary, for example, told me you needed $50,000 to buy Bitcoin, and that it would be hard for anyone in the country to use--despite the iPhone in her shirt pocket. ![[20210906_111218.jpg]] 15/ And it's true that the government has been extremely opaque about the plans for the state-run Chivo wallet. Initially, it seemed to be a Lightning-based idea, but now leaked plans seem to point to a Cash App-type dollar app, that can simply receive/send BTC on-chain. ![[20210906_111238.jpg]] 16/ We are going to learn a lot on Tuesday. Will Salvadorans be able to download the app, claim their $30, and spend it? Will the ATMs work? For the first country to attempt national Bitcoin adoption, it could be a boondoggle. ![[20210906_111259.jpg]] 17/ However, the promise of the technological leap is massive. Around 25% of the country's GDP relies on remittances. If families can receive these funds in Bitcoin from abroad and save in BTC or USD, or cash out at Chivo ATMs across the country, that's a major life upgrade. ![[20210906_111320.jpg]] 18/ Most likely the launch will be buggy, there will be issues, and delays. It also seems that from talking to local business owners, that some are getting Bitcoin software to be able to accept BTC to be compliant with the law, but that they won't want to touch Bitcoin at first. ![[20210906_111341.jpg]] 19/ So in the early days of this new era, it seems likely that most Bitcoin flowing in to El Salvador from abroad, or being spent at stores in the capital, will go straight to the government. There are also major surveillance and confiscation concerns over the Chivo wallet. ![[20210906_111404.jpg]] 20/ With that in mind, it's critical to help Salvadorans understand that not your keys, not your coins. Education to help people download non-custodial, non-KYC wallets will be essential and important. "Si no tienes las llaves, no es tu dinero" should be a rallying cry. ![[20210906_111424.jpg]] 21/ As El Salvador takes a massive technological jump into the financial future, before any other country, there are bound to be mishaps. The process may be derailed or discredited by Bukele himself, who has taken alarming actions in the past few months: -Quote tweet: "Is President Nayib Bukele taking El Salvador down the path of authoritarianism? Experts say Bukele wants to concentrate all political power in his own hands. @CarlosDada, director of @_ElFaro_ News, helps us understand what's at stake for the region" - https://twitter.com/NatashaFatah/status/1434344121364275200?s=19 22/ Most recently, by planning a purge of more than 100 of the country's top judges, and by getting clearance from the new judicial system to run for another term, something that was previously forbidden by the constitution. - Quoted tweet: "HRF expresses grave concern over recent developments in #ElSalvador, which further reveal the authoritarian tendencies of Nayib Bukele’s administration." - ![[20210906_111601.jpg]] - ![[20210906_111603.jpg]] - https://twitter.com/HRF/status/1433470934443302914?s=19 23/ All that being said, El Zonte and the founders of Bitcoin Beach remain an incredible inspiration for El Salvador and the world. The reality is, the situation is messy. There is no black and white, no "hot take" possible of capturing the full picture. ![[20210906_111648.jpg]] 24/ For Salvadorans who are open-minded and willing to put in work to understand Bitcoin it could yield enormous fruits. Mama Rosa, for example, has operated her business in Bitcoin for the past 2 years, and has been able to afford assets like this truck for the first time ever: ![[20210906_111716.jpg]] 25/ Either way, I look forward to reporting on the story of El Zonte and El Salvador's Bitcoin transition for @BitcoinMagazine. Look out for my article to drop on September 15th ✌️ ![[20210906_111738.jpg]] 26/ P.S. all of these photos were taken by me personally on my trip last week. The charts are from the Instituto Universitario de Opinión Publica. ![[20210906_111801.jpg]] ### Incredible circumstances We must keep the democratic erosion in El Salvador front of mind, but we also must ask: Would the US government or EU ever release a state-run Bitcoin app with the ability to instantly send and receive Lightning from non-custodial, non-KYC’d users anywhere in the world? ⚡️ https://twitter.com/gladstein/status/1435337806105116672?s=19 ### Government Chivo node So the Chivo lightning node from the government is: https://1ml.com/node/02f72978d40efeffca537139ad6ac9f09970c000a2dbc0d7aa55a71327c4577a80 https://twitter.com/nicolasburtey/status/1435167846716280832?s=19 ### Clarification on what is allowed Here the Salvadoran government seems to clarify previous statements, saying that one could use any wallet to comply with the law, but that the government one (called Chivo) will be subsidized so that it won’t have any fees. https://twitter.com/gladstein/status/1434992698633510912?s=19 Aclaración: > #ElSalvador | A pregunta del entrevistador: "Entonces, ¿a lo que yo estoy obligado es a tener la billetera electrónica?", Javier Argueta respondió: "A tener la billetera electrónica, que los costos son ínfimos y la del Estado es gratis”. > https://t.co/8m3GtnAjNI https://t.co/XgEtTUKG0O https://twitter.com/elsalvadorcom/status/1434958399394000901?s=19 ### [[Bitcoin]]apps are dominating the [[El Salvador]] app store The top 6 Finance apps in El Salvador's App Store are all Bitcoin apps. PayPal is #7. El Salvador's largest bank is #8. ![[20210909_171420.jpg]] https://twitter.com/kerooke/status/1435670696248725508?s=19 ### If gov't claim is true, Lightning makes up 1% of GDP By [[Alex Gladstein]] https://twitter.com/gladstein/status/1443786553512239106?s=19 The Salvadoran government claims $1M in remittances are received through Chivo every day. *If true* (big if) this means that the state-run Bitcoin app is transporting about 6% of El Salvador's annual $6 billion in remittances, which adds up to more than 1% of the nation's GDP. Many questions. How many remittances are being sent via Bitcoin or Lightning outside of Chivo? How much of Chivo is USD>USD, and how much touches BTC or LN? How many Salvadorans are withdrawing their Chivo balance immediately into cash or non-custodial BTC? ### "Foreign agent" law Original: https://twitter.com/gladstein/status/1461036558706896897?t=yLl0KJMpqdonMFJc5h-yKA&s=19 Very concerning: foreign agent law being fast-tracked in El Salvador. It would apparently include 40%tax on foreign funding,closure of orgs for violations & 2-5 yrs in prison for 'activities against the national interest'. This would be clear violation of🇸🇻's int'l HR commitments From [[Alex Gladstein]]: Very alarming 🚨 New "Foreign Agent Law" could pass as soon as this week in El Salvador. Huge state attack on dissent, used by many dictators around the world. ### [[Chivo]] == way to seize Bitcoin? “You could send [bitcoin] to another Chivo Wallet, but not to an external wallet, so any merchant using Chivo would be able to accept it, but any merchant not using Chivo would not be able to accept it,” Provoost said. “Which is the exact opposite of the point of being interoperable.” https://bitcoinmagazine.com/technical/first-look-chivo-app-el-salvador-bitcoin-wallet Dictatorships have a tendency to try to accumulate hard currencies... [[Cuba]] is one example ### Volcano mine == way to circumvent sanctions? https://bitcoinmagazine.com/culture/president-bukele-begins-100-renewable-volcano-bitcoin-mining-in-el-salvador ![[MTg0MjEyMjY5OTIyNTI3MDYx.webp]] ## Negotiations with [[IMF]], [[Nayib Bukele]] sacked 5 Supreme Court Judges ### Comments by [[Francis Poulliot]] https://twitter.com/francispouliot_/status/1466576810792026113?s=20 El Salvador is still negotiating loans from the IMF as we speak, the discussions simply stalled earlier this year because Bukele sacked supreme court judges that were opposed to his draconian lockdowns and violation of civil rights. ### The [[Reuters]] article https://www.reuters.com/world/americas/imf-meets-salvadoran-delegation-washington-2021-11-10/ NEW YORK, Nov 10 (Reuters) - The International Monetary Fund said on Wednesday it has been meeting this week in Washington with a delegation from El Salvador, for annual talks which the Fund said could "underpin" discussions about a new lending program. The Salvadoran government is looking to revive talks over a potential $1 billion loan agreement. The Fund has said discussions about that agreement have been stalled since April. The sacking of five Supreme Court judges and the dismissal of the top prosecutor in May soured the relationship of Nayib Bukele's government with the United States, the largest IMF shareholder. The U.S. government's anti-corruption stance in the region has also been a sticking point between the two countries. ... Salvadoran bond spreads to U.S. Treasuries (.JPMEGDELSR) rose to a record high above 1,100 basis points in late September and are currently above 1,000 bps, all but shutting the country from financing markets and highlighting the importance of a deal with the IMF.