El Salvador Walks Back Its Bitcoin Law

But it's also investing more in the cryptocurrency.

Four years after becoming the first country to adopt bitcoin as legal tender, El Salvador is taking a step back. The Legislative Assembly has approved changes to the country's Bitcoin Law, effectively removing bitcoin's status as legal currency.

On January 29, the assembly—controlled by President Nayib Bukele's New Ideas Party—passed the legislation with a 55–2 vote. Six articles of the Bitcoin Law were modified and three others were repealed.

Under the new rules, bitcoin is no longer considered "currency," though it remains "legal tender." Another change makes using bitcoin entirely voluntary. (Previously, the law mandated that businesses accept bitcoin for any goods or services they provided.) Additionally, bitcoin can no longer be used to pay taxes or settle government debts. The government is also stepping back from its involvement in Chivo Wallet, the state-backed digital wallet.

The changes are expected to take effect 90 days after their publication in the official gazette, which is likely to happen in the next few days.

The reforms come as part of a broader financial agreement between Bukele and the International Monetary Fund (IMF). One of the conditions for a proposed $1.4 billion Extended Fund Facility loan was that El Salvador mitigate "potential risks of the Bitcoin project."

The IMF has been critical of the country's crypto policies since Bukele made bitcoin legal tender in 2021. "There are large risks associated with using Bitcoin as legal tender, especially given the high volatility of its price. We don't recommend it," the organization said in 2022. 

Despite these changes, the administration insists it remains committed to bitcoin. Milena Mayorga, El Salvador's ambassador to the United States, has said that El Salvador is still a "bitcoin country" and will maintain—and even expand—its bitcoin reserves.

"You have to adapt to the current situation and this is the decision that was taken in the Assembly, but that does not mean that the country will stop having a bitcoin reserve," she explained.

Recent reports indicate that the government has purchased at least seven more bitcoins in recent days, bringing its total holdings to 6,055 bitcoin, valued at approximately $612 million, according to government data.

While the recent legislation signals a partial retreat from Bukele's ambitious bitcoin vision, the government's continued investment in the cryptocurrency signals that El Salvador isn't ready to walk away from crypto just yet.

Comments

[BYODB]

Yeah, while I tend to think of the IMF as the devil they aren't wrong here.

Bitcoin is incredibly unstable, just like all 'crypto', so using it as currency is actually pretty insane. What might buy you a candy bar one day could buy an entire house tomorrow, or the other way around. I'd be critical of an investment fund acting like this, let alone an entire country.

[the-machine]

I dont understand the point of a "bitcoin reserve". I get the use-cases for individuals or even companies using, or even "hodl-ing" bitcoin. But I can't wrap my head around why a NATION would "hodl".

[BYODB]

Presumably so the government can sell at a peak and make a boat ton of actual money somewhere down the line. Which is probably stupid, but it's the only way that makes any sense to me.

[Overt]

The same reason you would have a gold reserve. No nation needs gold for any reason other than they think others will demand it if they need to back their currency with something. Gold cannot be inflated quickly (until someone parks a gold asteroid in orbit). And likewise Bitcoin cannot be inflated away (until someone unparks that asteroid from orbit and we lose all electrical infrastructure).

[BYODB]

The problem is that BitCoin is both an investment and, now, a currency.

It's akin to buying a candy bar with a fraction of your stock portfolio without knowledge of what that portion of your portfolio will be worth tomorrow.

Stocks can at least be somewhat predicted as they are based on reality and markets (by and large, anyway), but BitCoin fluctuations are based on nothing. It's, at best, lagging behind real world economic fluctuations and speculation bubbles.

Third word currency is highly volatile, no disputing that, but switching to BitCoin doesn't remove any of the factors that lead to that volatility in their own currency either.

I don't know if another nation would even accept BitCoin as payment for El Salvadors debts, and El Salvador can't predict what the valuation of their holdings will be if those debts should come due.

[Overt]

Bitcoin's fluctuations in value are not based on nothing. They are based on the implied value of the digital asset, as judged by the mutual exchange between the buyer and seller.

While I have my problems with Bitcoin, these arguments just have no merit.

Yes. Bitcoin's value is heavily, probably majority, influenced by speculation.

Yes. That Speculation causes wild fluctuations in the bitcoin value, which decrease its value as a currency.

No, Bitcoin's fluctuations are not based on "nothing". Gold's value is also heavily based on speculation. Perhaps 10% of Gold's value is based on its fundamental worth as an industrial or jewelry metal. The remaining 90% is because of its properties as a currency, which leads to people speculating. Bitcoin is not terribly different. Other than having no alternative uses for industry/jewelry (that 10%) its value is based on its usefulness as a currency, and people speculating how much economic activity it will eventually track.

The settling of debts is a different issue. No one requires a country to hold all of its treasury in one asset (and few do).

[BYODB]

Bitcoin's fluctuations in value are not based on nothing. They are based on the implied value of the digital asset, as judged by the mutual exchange between the buyer and seller.

Yes, but one must note that BitCoin is backed by nothing else. Not an economy, and not assets, but rather pure speculation. It could collapse tomorrow, or never.

Yes. Bitcoin's value is heavily, probably majority, influenced by speculation.

Yes. Since it has absolutely no intrinsic value it's only value is the value that speculators put on it to grow their wealth. Even fiat currency has some notional backing, BitCoin has literally none.

Making that your nations currency is, simply put, unwise. The fact it's subject to foreign regulation and speculator sentiment that could instantly crater it's perceived value should make that clear.

As an investment vehicle for some of your money as an individual, sure, why not. If you lose in the market you're probably fine as long as you diversified.

BitCoin, as far as I'm concerned, is merely a modern incarnation of Tulip Mania.

[шинка]

Going to a casino and betting is not referred to as investing. BitCoin is nothing more than a bet against the house. And the "house" are all irrational investors.

[Rossami]

re: "It's akin to buying a candy bar with a fraction of your stock portfolio without knowledge of what that portion of your portfolio will be worth tomorrow."

How is that any different from buying a candy bar with a dollar? Like most folks, I have a pot of dollars (cash and cash equivalents) in my portfolio but I have no knowledge of what portion of my portfolio that dollar will be worth tomorrow?

The only difference is in the degree of volatility - but everything has volatility and everything has it in varying degrees. Volatility is not a sufficient reason to oppose bitcoin.

Note - your claim that stocks can be (somewhat) predicted is contradicted by the fact that 'you ain't rich'. If the market were even partially predictable, you (and other smart people) would be exploiting that predictability to make money and not be wasting time here. Yes, bitcoin's value is heavily influenced by speculation. So is every stock and every commodity on the market. That's what markets do.

[BYODB]

The only difference is in the degree of volatility - but everything has volatility and everything has it in varying degrees. Volatility is not a sufficient reason to oppose bitcoin.

Sure it is. If it wasn't for it's volatility no one would invest in it since it's value would be relatively fixed and thus not subject to massive gains based on speculative bubbles.

For a short-term investment I can see the attraction, but for a currency not so much. I'd like to have some confidence that it's value won't suddenly crater and be worth less than my initial investment when it's my only or primary medium of exchange.

If I'm investing funds I don't care about, it could be worth the speculation to get back double my investment in a month. It's more like gambling than investing if we're honest, and I don't want the money I use to buy food to be based on gambling.

[Chipper Chunked Chile Con Congress (ex NCW)]

Sure it is. If it wasn't for it's volatility no one would invest in it since it's value would be relatively fixed

That actually sounds like a reason to invest in it.

If I'd gotten into Bitcoin when it was new, and it had followed that trajectory, rather than the one that has occurred, would I be rich? No.

But the $USD has dropped in value by like, 30% since then as well. And I'm still getting paid in those.

[BYODB]

Note - your claim that stocks can be (somewhat) predicted is contradicted by the fact that 'you ain't rich'. If the market were even partially predictable, you (and other smart people) would be exploiting that predictability to make money and not be wasting time here.

I see you don't understand percentage gains over time or what the average rate of return is on the market.

Hilariously this is the exact reason why people speculate in BitCoin and other cryptocurrency. It's because the percent of return can massively outperform the stock market depending on when you get in and when you get out.

In fact, people get rich off the stock market every damn day but it takes a lifetime of investing to get there for most people. The idea that one should be rich tomorrow when investing is the kind of thing a moron says.

[mad.casual]

How is that any different from buying a candy bar with a dollar?

Cart and horse. The candy bar and the dollar exist as the derivative of other functions or processes. Crypto, explicitly to its core, strives to sever all such derivations (or selectively sever them with the controlling interests serving as the respective fiat or God-King determining which derivations and/or exchanges are allowed).

[Chipper Chunked Chile Con Congress (ex NCW)]

The problem is that BitCoin is both an investment and, now, a currency.

The problem is that people think in terms of fiat currencies now, as opposed to specie. People have been taught to think in terms of what an ounce of gold or a bitcoin is worth in terms of US dollars or the Euro or whatever. I'm subject to this myself. I don't know how to fix it, or even if it's fixable.

But we're entirely too used to being paid in currency that can be inflated away by people we don't know.

[mad.casual]

The problem is that people think in terms of fiat currencies now, as opposed to specie. People have been taught to think in terms of what an ounce of gold or a bitcoin is worth in terms of US dollars or the Euro or whatever. I'm subject to this myself. I don't know how to fix it, or even if it's fixable.

You're subject to your own narcissism and self-retardation.

Not all of us think in fiat currencies. Not even remotely. The vast majority of human interactions are completely uncapitalized/monetized (even if the laws of physics and economics can put a value to them). You have to be some sort of insane zealot to think otherwise.

"Ounce of gold", seriously? You sound like a reverse mortgage or Franklin Mint commercial targeted at old people of diminished mental capacity.

[Overt]

We are talking about developing countries here. Bitcoin's instability pales in comparison to many of these countries' currencies. The alternative is to pin your currency to the US Dollar, which is basically the reason even in these developing countries, we see population collapse- we are exporting the inflationary effect of our dollars to these countries.

What the IMF is doing is wrong on many many levels. Supporting bitcoin may or may not be a good idea (it is very risky) but these strong arm tactics from the IMF ultimately tie these countries to the US dollar, which is bad for everyone.

[mad.casual]

What the IMF is doing is wrong on many many levels.

I am by no means a fan of the IMF but if anyone ever really cared about BTC and crypto being the lifeblood of any sort of libertarian revolution pushing back against a government mandating the acceptance of it is a solid, individualist, libertarian W and the opposite is rather overt support of fiat.

[JFree]

If Bitcoin advocates want it to be a currency, they are going to have to step up and do exactly what the IMF is doing here and what El Salvador is doing here. Lending and borrowing bitcoin. That is how money was first known to be created - when humans first started planting crops instead of gathering them. Hey Og - lend me some of those great seeds and I'll pay you 25% more in seed when the crop comes in. With money, writing, arithmetic, religion, and government all following from that over time.

But no rational person on the planet would ever borrow bitcoin because nothing else that one would want money to borrow in order to produce will grow in synch with how bitcoin is produced. It doesn't have any commodity as its origin. The volatility of bitcoin is what leads to bankruptcy of any borrower of it.

Maybe ethereum could have a use-case as a public cryptocurrency because it does have a contract at its core. But mostly blockchain has just turned into a scam with no use-cases at all (but a whole bunch of play pizzas that are being hodl'd and hyped). Turns out techbros and whales ain't gonna save El Salvador.

[BYODB]

That is how money was first known to be created...

This is, of course, bullshit but it's a minor quibble I suppose.

[JFree]

Even bitcoin understands the origin of money - though it doesn't understand why intermediaries exist. The ENTIRE purpose of bitcoin was to use some fancy cryptography to ensure that intermediary records can be trusted. Well trust is only necessary if the intermediary is itself necessary.

If money originated as barter (which is the speculation though there is not one scintilla of evidence in history to indicate that barter was ever something), then no intermediary is necessary. No trail of transactions needs to preserved at all. The idea itself of tracking transactions when exchanging bread for butter is - creepy. So on (presumably) your side - you got no evidence of anything and a creepy need for intermediaries.

On my side, there is the entire history of everything that anthropologists have ever dug up from the past. eg clay tokens (produced by priests - deemed ethical and trustworthy) recording deposits of and ownership of grain in a warehouse (govt or king owned). With systems of writing and artithmetic imprinted into that token so the token ITSELF can be used/exchanged for stuff. Money. And even that would be considered 'late stage' money - since debt itself is just a formalization of a gift/obligation 'economy' that is how every family/kin group has organized itself since forever, in every place on Earth, and continuing to today when the first thing a new neighbor does is borrow a cup of sugar. It's not about the sugar. IT is about establishing relationships and trust. Precisely the stuff that the blockchain is supposed to 'solve'.

Let me repeat there is NOTHING - no historical evidence at all - that barter was ever the basis for anything. Indeed the idea is laughable since the only basis for barter is 'production on spec'. Producing something when you don't even know you have a customer. That is massively risky and the way real people handle that risk is instead by starting small and only growing when customers show up and like what you're producing. If you have excess at the end of the day, that is worth - garbage. Barter would instead be something like - produce a ton, sell some to customers, convert the rest into supposedly valuable money instead of garbage.

[BYODB]

There is absolutely no evidence that the earliest human's that began planting instead of hunting/gathering had any notions of trade whatsoever. Most posit that it was a communal endeavor, not that there's any particular proof of that either.

[JFree]

There is absolutely no evidence that the earliest human's that began planting instead of hunting/gathering had any notions of trade whatsoever.

The pre-historical evidence of trade dates back to the origins of what we have named that era - the STONE Age. The reason it is called that is because we have unearth stone that was clearly crafted by man from stone that did not originate anywhere near by. eg Stonehenge and flint arrowheads and obsidian cutting blades and such. How do YOU think those materials got to where they ended up buried? And even more so when the people become sedentary and goods accumulate that can't just be moved all the time.

More apropos - the earliest evidence of proto-writing (and of a group that shifted from hunting/gathering to farming - and the earliest evidence of farmers) comes from Tell Abu Hureya inhabited from 11,000 BCE to 5000 BCE. Specifically and literally - clay tokens that are counting and symbolizing sheep. Was this just an ancient way of curing insomnia? Or was it accounting for trade - where those clay tokens are in fact money?

The oldest surviving 'law code' - the Code of Ur-Nammu - 2100 BCE - is mostly about the consequences of trade/money disputes. Which because trade and debt involved humans (including children of a debtor and slaves) also meant that disputes involved a new creation of laws to prohibit some actions and compel others. The reason those 'laws' were carved into stone and placed in the middle of town was to inform everyone as to what the rules were of this 'governing entity') so trade could occur. Same as the motive for, much later, putting the king's head on a coin.

The Rosetta Stone (much much later - essentially the world's first multilingual text) is the way we were able to decipher ancient hieroglyphics from much earlier. That decree is basically a pharoah ordered debt/tax jubilee with a lot of new rules about temple taxes and such. The reason it fits ancient hieroglyphics is because those ancient examples were not mainly histories/myths of dead kings and battles found in pyramids. They were accounting texts involving debt, money, temple tax payments (which warehoused goods), etc.

There is literally the entirety of everything that has ever been unearthed. If you can't comprehend how money actually works, then you can't understand how those societies worked (and sometimes didn't).

[Overt]

"They are going to have to step up and do exactly what the IMF is doing here and what El Salvador is doing here. Lending and borrowing bitcoin. "

Which of course happens EVERY fucking day in cryptocurrencies of various stripes, including Bitcoin. Maybe JFear- in his next attempt to quickly educate himself on shit he knows nothing about- should try googling "Staking".

"That is how money was first known to be created - when humans first started planting crops instead of gathering them. "

Jesus christ. Can JFear *ever* stop spouting wrong shit about things he knows nothing about?

Money- the use of a medium of exchange to advance beyond bartering- predates agricultural populations. Just look at hunter-gatherer tribes who often used not just money (commodities) but actual currencies (abstractions of moneys) like shells.

It is always a laugh when JFear jumps into these comments.

[JFree]

hahaha. So - a bitcoin pumper are you?

If 'staking' could've worked to deliver ONE measly $1.4 billion loan to El Salvador - after four years of being 'legal tender' - with a daily trading volume of $118 billion - a 'money supply' (market cap) of $2 trillion - a huge 'bitcoin reserve' owned by El Salvador - and an energy usage greater than Argentina to 'handle the paperwork', then this article wouldn't exist.

And what you know about the origin of money is apparently contained within two sentences of that comment. Unimpressive. Maybe you should learn how to read instead of bleat.

[BYODB]

Money- the use of a medium of exchange to advance beyond bartering- predates agricultural populations. Just look at hunter-gatherer tribes who often used not just money (commodities) but actual currencies (abstractions of moneys) like shells.

There isn't much proof of that if we're honest, but in some fairness I have no idea which cultures in particular are being referenced nor which time frame in particular you're talking about. There is very little known about pre-neolithic cultures and much of what we claim to know is based on flimsy or assumed evidence.

[JFree]

What we know about any past society is whatever we have unearthed. It will never be the level of knowledge that we would need to reverse engineer a society like that and make it work like it did work.

But I've learned enough about archaeology and anthropology and history to believe with reasonable conviction that when we attach a bunch of ooga booga and myths and religion and magic to the past - and render it 'primitive' and incomprehensible - it is usually because of OUR assumptions. That we assume ourselves to be more intelligent than they - and therefore we can be lazy about the evidence we do see as long as that laziness confirms our bias that they were stupid.

'Money as barter' - or more accurately in an economic sense that both production/surplus and 'failed' immediacy of consumption'' precedes money - is one of those modern myths.

[mad.casual]

There isn't much proof of that if we're honest, but in some fairness I have no idea which cultures in particular are being referenced nor which time frame in particular you're talking about. There is very little known about pre-neolithic cultures and much of what we claim to know is based on flimsy or assumed evidence.

Also, as close to the conception he's invoking that you get, he's selectively narrating or interpreting. Beads and shells also served as historical artifacts and signs of privilege among people who didn't have written language. The average goat herder or trapper didn't have a bag full of wampum that he exchanged for suckling goats or jerked meat at the market in the spring. The Chief or Chieftans had elaborate necklaces and jewelry made for which they would document and offer as entreaty or transfer of power.

It's akin to saying that, in the early Middle Ages, the Crowns of England and France changed hands multiple times, ergo, most people in Europe in the Middle Ages used gold crowns as currency... and that's how Bitcoin subverts a/the fiat.

[Rick James]

While the recent legislation signals a partial retreat from Bukele's ambitious bitcoin vision, the government's continued investment in the cryptocurrency signals that El Salvador isn't ready to walk away from crypto just yet.

The problem isn't whether the government "walks away" from Bitcoin or not, the problem is the people of El Salvador never "walked towards it"-- while it was 100% legal.

[mad.casual]

Pretty sure, at this point, the entire concept of crypto boils down to: "Our 'If we build it, they will come.' technology is completely secure against any sort of authoritarian capture. Trust us bro."

[Chipper Chunked Chile Con Congress (ex NCW)]

One of the conditions for a proposed $1.4 billion Extended Fund Facility loan was that El Salvador mitigate "potential risks of the Bitcoin project."

Risks to... the IMF?