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.

"Nobody used it and the costs didn't justify the usage" is a complaint you can level at any currency?

Yes. Using any particular currency generally isn't voluntary. If El Salvador had mandated everyone use only bitcoin then it everyone would have been using it. If using USD was voluntary in the US a lot less people would use it. It isn't a particularly strong argument to say that everybody uses one thing that they are legally required to use, then compare it to a new alternative that didn't gain total dominance in a few years.

Although in this case I am happy to agree it might be true despite being a weak argument, I can see a lot of good reasons why someone wouldn't want to use Bitcoin in practice. But the article didn't touch them when declaring a failure and the experiment wasn't run to a natural conclusion where the people involved decided it was not working.

> If using USD was voluntary in the US a lot less people would use it.

I'm curious what makes you think so, and what the alternatives would be. My impression is actually that if shops weren't forced to accept USD, 100% would still do so.

Obviously we can't be truly certain without running an experiment or few, but...

1) If they're being forced to do something, that suggests someone doesn't believe they would do it voluntarily. Nobody more suspicious than the person who forces others to do things for their own good.

2) Businesses are invariably blamed for inflation. Every single time the subject comes up organically somebody pipes up to blame "greedy businesses"; it is basically a meme. Some business owners would start up a non-inflating currency just to escape that. They don't want to be political scapegoats.

3) You can spot a bunch of banking crisises coming a mile away, the financial system seems to be mathematically guaranteed to collapse from time to time as I understand it. If given the choice a bunch of people would rather sign up for alternative systems that only enter a crisis state unexpectedly. That includes small business owners.

Would they still accept USD? In the US, probably. But a bunch of alternatives would crop up and it is by no means guarenteed that the USD would be competitive. The US Fed manages the currency and they do a terrible job.

> If they're being forced to do something, that suggests someone doesn't believe they would do it voluntarily

But wait. US retail shops are not forced to accept USD.

They can, if they choose, accept payment only in smiles. Or CAD, or good vibes.

(Taxes, however, must be paid in USD).

In practice, US retail wants USD, for obvious reasons. There are no viable widespread alternatives (but there are countless insignificant local currencies!).