Been thinking about El Salvador and #Bitcoin . Looking at it from a sectorial perspective, it looks like a desperate play to shore up public finances with the support of nefarious actors 🧵
There are three key issues to remember. 1. SLV will have a dual currency system with USD and BTC. 2. Due to high volatility, BTC is not a particularly good store of value. 3. Because of this, USD will remain as the currency for accounting and tax purposes.
What does this mean for the different sectors in the economy? Households in SLV can get BTC through mining, remittances or salaries. They can either use it for consumption or save it. What will they do?
GDP per capita is USD 3.7k. Around 30% of people in SLV live in poverty. As prices and goods will remain denominated in USD, their tolerance for BTC volatility is minimal. As soon as they get BTC, they will likely exchange it for USD through SLV public facility.
Business are in a similar position. Their credits, supplier bills (inc. imports) and taxes will remain denominated in USD. Sure they can pay those in BTC, but why take the risk of high intraday volatility that can mess up their capacity to settle bills at the end of the month?
So, just like households, every time they receive a BTC for a payment of a good or service, they will proceed to exchange it for USD in order to protect themselves from volatility and meet their bills (they might set some aside as a speculative investment)
What about the government? They will put in place incentives for households and business to exchange their BTC for USD through a public facility. This sets up a system where the government is in a position to receive a steady inflow of BTC matched by USD outflows.
Why they would do that? You cant settle imports nor meet debt payments with BTC. For that you need USD. The only scenario where SLV would want to structurally accumulate BTC is if they are convinced the price will always go up in the long run.
This is the desperate part of the play. SLV government seem to assume they can handle the short term volatility and profit from a never ending long-term appreciation of BTC vs USD. Risky play but if you are already talking to the IMF for a loan, there is not much to lose.
The nefarious part comes via the external sector. SLV is not a big exporter nor a an attractive FDI destination. BTC does not change this. However, the new law does allow SLV to sell potentially attractive money laundering services (at least initially)
The new law effectively allows BTC holders to buy anything they want in SLV skirting AML regulations. No matter where the money has come from they are free to buy properties skirting banks and the financial system all together, as the BTC goes from wallet to wallet.
So, if you are involved in some shady line of work, SLV gives you an easy way to launder your money. Come in, buy stuff, selling after couple of months/years and then exchange it for USD through SLV public facility.
They can take then take the USD out. Asked about the provenance of money by a foreign bank, they can show the receipt of its origin: SLV public facility. Presto. Clean money. (This will likely work until SLV is flagged internationally as AML risk)
Whats in it for SLV? This dynamic can start a real state boom with lots of new economic activity and construction jobs. The constant inflow of non-resident BTC will allow the government to leverage their own BTC play (under the assumption that it will always go up vs USD).
The problem is that this is an implicit BoP ponzi scheme. Only way to keep the show going is if the increase in value of BTC vs USD is large enough to offset clean USD outflows. If this criteria is not met, SLV will run out of USD. Bad money always drives good money out.
So, while this might work for a couple of years (domestic asset bubble) this is an enormous risk for the people of El Salvador. You dont want to find out the hard way if you can pay food, medicine and oil imports in BTC once your USD have dried out. END.

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More from @danielmunevar

11 Jun
Va 🧵 en español sobre el Salvador 🇸🇻 y #Bitcoin . Visto desde una perspectiva sectorial, parece una apuesta desesperada para estabilizar finanzas públicas apoyandose en actores de carácter cuestionable.
Hay tres cuestiones clave para recordar. 1. SLV tendrá un sistema de moneda dual con USD y BTC. 2. Debido a la alta volatilidad, BTC no es una reserva de valor particularmente buena. 3. Por esta razon, el USD seguirá siendo la moneda a efectos contables y fiscales.
¿Qué significa esto para los diferentes sectores de la economía? Los hogares de SLV pueden obtener BTC a través de la minería, las remesas o salarios. Pueden usarlo para el consumo o ahorrarlo. ¿Qué harán estos?
Read 18 tweets
19 Apr
Le he seguido dando vueltas a la exposición de motivos de la reforma tributaria. La conclusión a la que estoy llegando es que como dice el refrán "de eso tan bueno no dan tanto". Los supuestos beneficios de la RT son, en un su mayoría, resultado de mezclar 🍐con 🍎. Otro 🧵
La defensa de los méritos de la reforma se centra en este cuadro. Este muestra que el 10% más pobre del país aumenta sus ingresos un 68% mientras que el 10% mas rico reduce sus ingresos en un 4% en 2023. Redistribución!!!
El problema es que esas cifras que muestran una supuesta redistribución no están calculadas en el mismo escenario. Son resultado de la comparación de la situación de los mas pobres y los mas ricos en dos escenarios diferentes. 🍐y 🍎.
Read 15 tweets
18 Apr
Porque importan tanto los supuestos de crecimiento en la reforma tributaria? Porque una de las claves para reconstruir el cuadro central de la exposición de motivos depende de estos. Y hay un par de temas que parecen cuestionables 🧵 Image
Antes de ir al detalle, hay que hacer dos aclaraciones.
1. La EM no especifica el año de la comparación. No es claro si es 2022 o 2025.
2. La EM no incluye los supuestos utilizados para hacer la comparación.
Por ende, puede que mi interpretación no sea del todo correcta.
Asumiendo que la comparación sea 2022, hay una diferencia masiva en términos de PIB en el escenario CPL e inercial. El supuesto CPL es Alicia en el Pais de las Maravillas. El escenario inercial asume una crisis peor que la del año 2000. Image
Read 7 tweets
17 Apr
Supuestos macroeconómicos sobre crecimiento y ajuste fiscal de la reforma tributaria parecen presentar varias inconsistencias substanciales. Esto no es un tema menor. Si modelo y supuestos están mal diseñados, la discusion sobre RT termina basada en deseos mas que realidades 🧵 ImageImage
El tema mas importante es el impulso fiscal. Como se estima el impacto de un cambio en el balance fiscal en el crecimiento económico? Pareciera que crecimiento económico se estima de manera independiente a balance fiscal en el modelo utilizado por el gobierno.
Hay dos indicaciones claras en este sentido. El ajuste fiscal de 5.5 puntos del PIB en el escenario PCL entre 2021 y 2022 tiene un impacto marginal en crecimiento. Esto es similar a lo que ocurre con ajustes fiscales en escenarios alternativos entre 2023 y 2024.
Read 7 tweets
14 Oct 20
Mind the (PR) Gap - While we wait for the G20 announcement on the DSSI, thought it could be useful to pull together all the discrepancies pointed out by independent research on the statements and policies of the G20/IMF/WB - A thread 🧵
We are set to hear the wonderful achievements of the DSSI and the courageous efforts of the G20 to extend it for a full 6 months. @ifresnillo explains in her new @eurodad report the myriad of contradictions and problems with the DSSI approach #mindthePRgap
In the meantime, the IMF and countries worry that participation in the DSSI might increase borrowing costs. @davidmihalyi @a_presbitero show that the DSSI leads to lower borrowing costs does not seem to produce borrower stigma #mindthePRgap Image
Read 11 tweets
6 Oct 20
🚨New @Eurodad report alert🚨 - Arrested development:
IMF and austerity post Covid-19. We review 80 IMF lending arrangements approved since March. Main findings in a "short" 🧵
TL/DR - IMF has learned nothing and forgotten nothing… #endausterity
It may come as a shock, but there is quite a gap between IMF discourse and practice. Discourse is littered with calls for a strong, fair and green Covid-19 recovery. In practice, lending arrangements show a rather different IMF...
Austerity like never before. 72 countries will begin fiscal consolidation in 2021. Tax increases and expenditure cuts are to be implemented in all 80 IMF program countries by 2023. These will implement austerity measures worth on average 3.8 per cent of GDP over the next 3 years
Read 12 tweets

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