Bitcoin also has the backing of a government - El Salvador.
I would rather argue though that even government backed currencies are fully dependant on trust, not government usage of it. Just check out any government currency hyperinflation event.
I would rather argue though that even government backed currencies are fully dependant on trust, not government usage of it. Just check out any government currency hyperinflation event.
A government backed currency means the government can issue that currency (for better or worse).
Bitcoin is legal tender in El Salvador, as is the US Dollar[1]. The US dollar is also legal tender in Zimbabwe and other countries.
We don't say the US dollar is backed by El Salvador or Zimbabwe. Instead it is backed by the "full faith and credit of the United States".
[1] https://www.investopedia.com/articles/forex/040915/countries...
91% of El Salvadoreans prefer to use USD, and most stopped using Chivo (the privately-owned, government controlled wallet) after withdrawing their initial deposit.
https://www.elsalvador.com/noticias/negocios/el-salvador-bit...
At least for now, El Salvador has enough cash on hand to pay the $800 million bond payable in February 2023. Current cash foreign reserves are about $3000 million.
I'd like to clarify though, that I'm not an economist, and that the processes required and implications of using those funds to pay the upcoming bonds due are outside my scope of knowledge.
The one that is actually important when it comes to currencies, having something valuable (whether it is a resource, power, political influence, military, finances, etc.) to back the currency up with.
But on the most technical level, you are correct, El Salvador has the ability to back up BTC in the same capacity as a country like Zimbabwe can back up Z$.
The IMF (International Monetary Fund) which typically steps in to offer predatory financing terms, already outlined their demands: drop Bitcoin support.
So El Salvador really must have gone all into Bitcoin, right? Yes, somewhere between 25million to 73million dollars worth (in contrast to their 800million dollar bond or the ~6billion dollars they raise in taxes each year [1]).
Oh the horror. There is definitely no geopolitical maneuverings here. /s
[1] Government Revenues in El Salvador increased to 6037.70 USD Million in 2021 from 4894.30 USD Million in 2020 https://tradingeconomics.com/el-salvador/government-revenues....
1. Not being beholden to the whims of American banks and the American government
2. Less administrative overhead would mean being able to offer more competitive services with lower fees [1]
3. Being Bitcoin friendly would attract more crypto oriented industries to be based out of their country: offering a wider market to tap into (global remittances)
[1] "Last year, they collectively transferred nearly $6 billion, or roughly 23% of the country’s gross domestic product, and a chunk of that went to the middlemen facilitating these international transfers." https://www.cnbc.com/2021/09/09/el-salvador-bitcoin-move-cou...
What percentage of El Salvador's GDP does remittance processing represent?