El Salvador's crypto experiment ends in failure

I'm pretty open to the idea that their crypto experiment ended in failure because bitcoin must be a truly terrible reserve asset, but being assassinated by the IMF isn't really evidence of that. El Salvador doesn't seem to have independently changed their minds about the merits of their policy.

I might draw a very vague parallel with a gentleman who can't repay a mortgage and through various machinations the bank forces him to sell his beanie baby collection. The beanie baby collection might have been a success or a failure for him personally. Probably was a failure. But that isn't really what we're learning in this story.

And pointing out that they lose money on the bitcoin reserve is a bit of a non-sequiter. They all do that. Gold has storage costs, the USD inflates like crazy and sometimes the US sanctions you. The analysis has to be a bit deeper than just noting that money was lost, it is a tricky question of relative options.

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.

No, this was very specific to crypto:

> The IMF was wary of lending to El Salvador while bitcoin was legal tender. Its volatile price posed a risk to financial and fiscal stability.

Government currencies don't have the price volatility of Bitcoin. You simply can't reliably manage an economy with that kind of volatility.

Why not? Government currencies are volatile too, people just tend to ignore that or blame price changes on greedy businesses.

Prices change continuously. You can never be sure what the price of anything is going to be next week.

> Prices change continuously. You can never be sure what the price of anything is going to be next week.

With a decent central bank you can, as the rate of inflation is fairly predictable:

* https://en.wikipedia.org/wiki/Inflation_targeting

We've recorded some of the most stable prices in the last few decades with that policy:

* https://en.wikipedia.org/wiki/Great_Moderation

as compared to when the gold standard was around:

* http://archive.is/https://www.theatlantic.com/business/archi...

And gold isn't as stable as most people think:

* https://www.macrotrends.net/1333/historical-gold-prices-100-...

even in the modern age:

> 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.

* https://www.ubs.com/it/en/wealthmanagement/insights/article-...

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.