The article makes a case on the merits for the failure of the project, in terms of its uptake, the direct value generated, and the costs of its rollout.
Those arguments could be levelled against any currency. Typically uptake is only 100% because the government has a "thou shalt accept this" policy. If it was practically voluntary then a bunch of businesses would operate on a barter system or private scrip. Even with the insistence of the tax office it takes regular crackdowns to stop alternatives springing up.
And it is even easy to argue that normal currency is value destructive, all the flows of money into crypto are implicit "I'd rather be burning energy than using USD" announcements.
Just over the past year BTC has gone between $54K and $104K.
Currencies are subject to inflation, but in a well managed economy that is generally a single digit yearly percentage and fluctuates slowly, and the currency changes value in a single direction only.
Normal government currencies don't gain or lose 10% of their value over a few days in purchasing power, as regularly happens with Bitcoin.
The distinction between government and crypto currencies is wrong one to make.
I fail to see how gold-pegged, gasselized (demurraged at constant rate until they vanish down to UBI limit, except from government/CB wallets, with other assets also demurraged when sold/bought via cap gains style taxes), constant supply cryptocurrency would not be in fact better than the dollar and the euro and the yen, and it would be both inflation & deflation resistant.
Between Sep 2012 and Jul 2013 gold went from $1780 to $1210 (-32%).
Between Feb 2024 and today gold went from $2040 to $2950 (+45%).
That's a crazy amount of volatility you would never want as a currency. Can you imagine signing multi-year contracts denominated in that? Even monthly contracts! It would be madness.
It's a bidirectional relationship. The value of gold actually remained stable when the U.S. dollar was pegged to it. I view that as evidence for pegging stabilizing the value of the commodity it is pegged to. However is an simplification, because share of the dollar relative to other currencies policies has changed. I also only believe the system I depicted would work, if the exports of the commodity were restricted so that no one or only the central bank could sell it abroad.
Saying something is “pegged” is saying that the price is fixed. There doesn’t exist any volatility between pegged instruments because that’s what a peg means.
So you have to compare them to other things, which is what inflation (or deflation) measures. And gold pegged usd has volatility to other items in the economy greater than modern fiat usd.
You're near-certainly right that pegging in dollars would means some rate, let's for simplicity presume a constant ratio, between dollars and what it's begged to.
I think crux is what happens if we model two different currencies, one of which is begged, and the price of te commodity in each.
If after the conversion rate you can get cheap gold, that keeps golds value low and pegged currency's value high, I would guess.
Again I think restricting impots in the commodity is necessary to maintain supply.
> I fail to see how gold-pegged, gasselized […] constant supply cryptocurrency would not be in fact better than the dollar and the euro and the yen, and it would be both inflation & deflation resistant.
If you don't see it then then you may wish to read more economic history, as the history of gold-pegged currencies shows that they caused anything but stability:
And it was only after leaving the gold standard that countries started to recover from the Great Depression:
> In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%.
If you can always move to smaller denominations, deflation would not be an issue:
If the price of an apple at t_0 is $2 and (using arbitrary symbol for the other currency) §2, and at t_1 $20=§2, then at t_1 citiziens in the nation using § as currency would pay §0.2 for an apple, et cetera.
The other currency would have to use scientific notation, for cash.
(if deflation wasn't the the cause of that crisis, this is not an answer).
I don't know the best rule to use for the process, since there seems to be many potential combinations of rules for it, but the idea of forced-gesselization is that if you buy a house with the bad money from foreign gray markets dealer, when you try to sell the house, you are taxed as if house and the bad money you bought it (this type of situation would be gray area, as such requiring intervention and appraisal of actual value by government body, which is not to be desired; but such practice also would not have to be commonplace) with had been in the demurraged currency, e.g. for the duration of the ownership.
Normally we can think of sales value to mean value - tax, where tax = g(ownership_duration), where g is gesselization function, which would preferably remain same over time but doesn't have to be linear or simply value or function of time as long as it is simply enough high schooler can solve for it without a computer.
> The idea behind a gold standard is that a currency becomes tied to a commodity with a stable value. The great problem with this is that gold does not have a stable value. Like any other commodity, its relative value goes up and down. For instance, in September 2022, US dollar milk prices were rising over 16%. In gold terms milk prices were rising over 23%—dangerously high inflation.
The "stability in CPI" after the gold depeg in the 70s is also when wages stopped growing in real terms. Most "wealth creation" since that date is on paper.
most wealth creation being on paper is because labor stopped getting paid and capital saw all the growth
kinda like how despite all of the inflation the average person only saw a 3% increase in actual take homes while the hyperwealthy saw 300% (of much, much larger numbers).
Are they as volatile as Bitcoin? Also, what can a government do to control Bitcoin's value, money supply, etc.?
> You can never be sure what the price of anything is going to be next week.
I do know what prices will be next week, within a sufficiently narrow range that I don't care. I think that applies to almost all consumers in advanced economies.
Price volatility might be bad for trade because seller and buyer don’t know what they should do at any point. So it slows trade down, which is bad for economy. It makes buying furniture seem like day trading. This happened in Turkey couple years ago
Volatility is a measurable thing, though. In 1985, 1 USD was worth 260 JPY. In 2011, 1 USD was worth 76 JPY. In that 40 year history, those are the extreme high/low ends. That's a ~70% swing over the span of 26 years. By comparison, Bitcoin had a 95% swing between September 2024 and December 2024.
All volatility is not equal. The degree to which Bitcoin is volatile is unmatched by any government currency I'm aware of.
Yes. Using any particular currency generally isn't voluntary. If El Salvador had mandated everyone use only bitcoin then it everyone would have been using it. If using USD was voluntary in the US a lot less people would use it. It isn't a particularly strong argument to say that everybody uses one thing that they are legally required to use, then compare it to a new alternative that didn't gain total dominance in a few years.
Although in this case I am happy to agree it might be true despite being a weak argument, I can see a lot of good reasons why someone wouldn't want to use Bitcoin in practice. But the article didn't touch them when declaring a failure and the experiment wasn't run to a natural conclusion where the people involved decided it was not working.
Paper money was first used in the West in Massachusetts Bay Colony in 1690, was used in limited fashion, became unpopular and then phased out. And that was the end -- paper money was a failure.
Wait....
The currency was initially unpopular for anything except paying taxes, and was phased out. Within a few years, however, paper currency would return to Massachusetts. The Bank of England began issuing banknotes in 1695, also to pay for war against the French, and they became increasingly common throughout the 18th Century.
> If using USD was voluntary in the US a lot less people would use it.
I'm curious what makes you think so, and what the alternatives would be. My impression is actually that if shops weren't forced to accept USD, 100% would still do so.
Obviously we can't be truly certain without running an experiment or few, but...
1) If they're being forced to do something, that suggests someone doesn't believe they would do it voluntarily. Nobody more suspicious than the person who forces others to do things for their own good.
2) Businesses are invariably blamed for inflation. Every single time the subject comes up organically somebody pipes up to blame "greedy businesses"; it is basically a meme. Some business owners would start up a non-inflating currency just to escape that. They don't want to be political scapegoats.
3) You can spot a bunch of banking crisises coming a mile away, the financial system seems to be mathematically guaranteed to collapse from time to time as I understand it. If given the choice a bunch of people would rather sign up for alternative systems that only enter a crisis state unexpectedly. That includes small business owners.
Would they still accept USD? In the US, probably. But a bunch of alternatives would crop up and it is by no means guarenteed that the USD would be competitive. The US Fed manages the currency and they do a terrible job.
> If they're being forced to do something, that suggests someone doesn't believe they would do it voluntarily
But wait. US retail shops are not forced to accept USD.
They can, if they choose, accept payment only in smiles. Or CAD, or good vibes.
(Taxes, however, must be paid in USD).
In practice, US retail wants USD, for obvious reasons. There are no viable widespread alternatives (but there are countless insignificant local currencies!).
It's funny that you mention it, because quite a few digital storefronts accept crypto. Particularly, the ones that have been censured by the financial oligarchies (Visa, Mastercard et al)
"My impression is actually that if shops weren't forced to accept USD, 100% would still do so."
Kind of like the crypto pump and dump scams that we see daily. Who wouldn't want to create their own currency? It would eventually take power away from the US government.
The Salvadoran government did have a "thou shalt accept this" policy, in addition to exempting bitcoin holdings from capital gains tax. It worked to drive initial interest, with a quarter of Salvadorans using Bitcoin for at least some transactions in 2021, but adoption fell sharply over time. I haven't studied it in depth, but my vague understanding is that many businesses couldn't actually figure out how to practically accept Bitcoin despite being theoretically required to.
And we can see the IMF got on that lickity split before anyone figured it out how to make the system convenient. 4 years to detect and act on this sort of international action is commendably speedy. I'd expect that the experiment would fail. The IMF probably expected it would fail. But we can also observe that the IMF moved with the speed of bankers worried that it might succeed.
Which isn't surprising. Bitcoin is unfortunately not well suited for petty transactions, even though it shines as a truly neutral platform for larger transactions. They should have tried to implement something like Lightning nationwide; some of Lightning's flaws could be overcome with government investment/buy-in.
I don't know, they say that they're up $250M but the total cost of the program was $375M. I presume the bulk of that $375 went into the $30 incentive balance. That amounts to quite an economic stimulus for cheap.
All in all, El Salvador has been doing pretty well economically. It's human rights that have been the worrying point.
