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Comment by d_burfoot | Hacker News Reader

Do you know why El Salvador adopted BitCoin? Previously they used the US dollar as their currency, because no one had any faith in a Salvadoran currency, even their own citizens. But doing this is basically meant that ES was paying tribute to the US, since the dollar continually loses value as more are created. US citizens at least get some benefit when the government prints trillions of dollars, in the form of government handouts; ES residents just get screwed.

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On a Bitcoin standard, instead of sponsoring the US, wouldn't El Salvador just sponsor early/current Bitcoin holders instead?

Replacing one currency not under the government's control with another doesn't seem to achieve all that much, and arguably, picking a deflationary currency at that might be much worse.

> Replacing one currency not under the government's control with another doesn't seem to achieve all that much

Slight correction: They are replacing one currency that is not under their government's control, with one that is not under any government's control.

> Previously they used the US dollar as their currency, because no one had any faith in a Salvadoran currency, even their own citizens.

El Salvador didn't dollarize due to inflation, as other countries have done (Ecuador or Zimbabwe).

The Salvadoran Colón was never an unstable currency.

One of the main advantages we had after dollarization was the lowering of loan interest rates.

I was too young to have loans at that time, but I recall my parents mentioning the repaid their mortgage in a shorter time because of that.

Also no foreign exchange risk with the major trading partner and the country where 2 million Salvadorans live: The U.S.

Serious question, why don't people have faith in the El Salvadoran currency? Why don't they try to fix the problems that are causing that lack of faith?

El Salvador replaced its currency with the US Dollar in 2001.

Notice that the same government that apparently can't be trusted to manage a currency is also in charge of the police and the military. So the government can't be trusted when it comes to currency, but it can be trusted with administering state violence... makes a lot of sense.

"Serious question, why does the third world remain poor even if it's got lots of human potential and natural resources?"

Government handouts are decided by Congress. Monetary policy is set by the Fed. Fed issuing more currency doesn't change the number on your unemployment check.

The downside of using the USD as a local currency is that the local central bank cannot set its own lending rates (markets will set rates at what the larger dollarized economy in the US is at) and has less control over monetary policy.

> The downside of using the USD as a local currency is that the local central bank cannot set its own lending rates

Salvadoran here

After dollarization happened in 2001, all loan interest rates went down. My parents paid their mortgage in a shorter time because of that.

It was less risky for the banks to lend in USD than in Salvadoran Colones. So lower interest rates.

That was true even when the Salvadoran Colon was stable for most of its history. It's been very close to 8.75 for the past 30 years.

And how many El Salvadorans see the benefits of new bitcoins being created?

At least those mining, which is more than participate in the USD consensus.

I think El Salvador adopted Bitcoin because their president believes it's going to the moon and adopting it will make everyone rich. He's repeatedly talked about "buying the dip", for example, but there's no obvious reason why El Salvador would want or need to buy the dip if they weren't hoping to benefit from future price increases.

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