Thread by @ElFaroEnglish

#ElSalvador | The Bukele administration has announced that next week it will sponsor a bill to convert #Bitcoin into legal tender alongside the $USD.

https://twitter.com/nayibbukele/status/1401327906178191366

El Salvador dollarized its economy in 2001. "Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador," reads part of the bill. The move won't replace the dollar, but rather allow the Central Bank to acquire reserves of Bitcoin.

The move also comes amid yearslong debate over whether to break away from the U.S. Dollar to give the Salvadoran Central Bank control over currency supply. A big part of this debate has been the large public debt & payment of public salaries and pensions. elfaro.net/en/202010/el_s…

The Salvadoran government is currently negotiating with the IMF to refinance its large debt — which in January exceeded 85% of GDP — w/ lower, more favorable interest rates & longer-term repayment. The U.S. government's blessing of negotiations will be a major factor.

In May, the new Assembly approved $730 million in new debt, surpassing $23 billion in total government debt — over 90 percent of GDP, as @_elfaro_'s @Jim_alva and @RoxLazo94 reported. elfaro.net/es/202105/el_s…

"The macroeconomic situation in #ElSalvador is critical," @StateDept envoy #RicardoZúñiga told our D.C. correspondent @jlsanz. "For the U.S. it’s important to address this problem because an economic crisis...could prompt a new wave of migration." elfaro.net/en/202104/cent…

But the U.S. State Department has also named senior Salvadoran officials as tied to corruption, which Biden has called a "national security threat." His admin says it will increasingly look to international financial systems to target corrupt actors.

https://twitter.com/ElFaroEnglish/status/1400969015967760386

If the Salvadoran government fails to gain U.S. support and come to an agreement with the IMF this year to restructure its debt, that could push the government to more fully consider dedollarization or other monetary options, according to economist @Recasta.

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