Bitcoin boosters see Latin America as “crypto”. Does the idea have value?
Cryptocurrency, like Bitcoin, is popular with many Latin American countries: they see virtual money as a successful alternative to conventional finance. Last year, El Salvador became the first country to accept Bitcoin as legal tender. Last week, Congress in Panama authorized its use – and Brazil looks set to do so this month.
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This wave has also sparked plans for new cities funded by cryptocurrency investment, including El Salvador’s proposed “Bitcoin City.” Many proponents see them as “cryptopias” or cryptocurrency utopias, which will boost the economic development of Latin America. Critics call the projects a lot of hype that will end up doing very little for ordinary Latin Americans.
WLRN’s Luis Hernandez spoke with Americas Editor Tim Padgett about the region’s hype and hope.
Here are excerpts from their conversation, edited for clarity:
READ MORE: Why El Salvador is embracing bitcoin – and why skeptics warn it won’t work
HERNANDEZ: Tim, first remind us what cryptocurrency is – and why developing countries like those in Latin America seem so enthusiastic about it.
PADGETT: Bitcoin and other cryptocurrencies are digital or virtual currencies. They are not controlled by government central banks, but by the people who use them – so many people believe that cryptocurrency will democratize money the same way the internet has democratized information.
It’s a popular notion in Latin America because 70% of the population is “unbanked” — they don’t have bank accounts or credit cards. And the traditional financial system doesn’t do much to include them. Cryptocurrency is therefore seen as a way to bring more people into the formal economy.
HERNANDEZ: And don’t some authoritarian governments — like Cuba’s — see cryptocurrency as a way to circumvent economic sanctions like the US trade embargo?
PADGETT: Yeah, that’s why Cuba last year allowed the use of cryptocurrency and last week issued regulations to that effect. The communist regime hopes that because cryptocurrency operates outside of the conventional international financial system, it could help Cuba buy and sell things without being blocked by the US embargo.
The problem is that Cuba’s authoritarian ally, Venezuela, tried something similar a few years ago with a cryptocurrency called Petro. He failed miserably.
A study reports that the little use of bitcoin in El Salvador is among educated people, the middle class and the banking system. So there’s not a lot of democratization of money there.
HERNANDEZ: So El Salvador is probably in the bitcoin boom more than any country in Latin America. How are things going there so far?
PADGETT: The rollout, so far anyway, has been a failure. El Salvador has implemented an application, called Chivo Wallet, for bitcoin transactions. But few people use it – especially the “unbanked” people that cryptocurrency was meant to empower. The nonprofit Massachusetts National Bureau of Economic Research reports that little bitcoin usage in El Salvador is concentrated among educated, middle-class people and already in the mainstream banking system. So there’s not a lot of democratization of money there.
HERNANDEZ: Didn’t the International Monetary Fund tell El Salvador it should get rid of bitcoin?
PADGETT: Yes, the IMF is now advising Salvadoran President Nayib Bukele to ditch bitcoin because its value is simply too volatile – too wildly swinging up and down – for a small, poor economy like El Salvador’s can handle it. Last month, Bukele canceled his participation in the big Bitcoin 2022 conference here in Miami (reportedly because of gang violence that has erupted again in El Salvador). And international investors are really balking at the billion dollar worth of bonds that Bukele is trying to sell so he can build what he calls Bitcoin City.
HERNANDEZ: Okay – tell us, what exactly is “Bitcoin City”?
PADGETT: Bitcoin City is this vision that Bukele has for a community whose local economy will only run on bitcoin. He wants to build it near a scenic coastal volcano in El Salvador – which, by the way, will supposedly supply Bitcoin City with geothermal energy, including all the massive amount of computing power needed to create or “mine” it. bitcoin with these incredibly complicated mathematical algorithms. But the idea is that as Bitcoin City grows, it will become a showcase for how cryptocurrency can drive national economic growth in a country like El Salvador.
HERNANDEZ: Where else in Latin America do we see efforts to build these so-called “cryptopias”?
PADGETT: Next door in Honduras, a special economic zone called Próspera (Prosperous), started using cryptocurrency last month. The U.S. territory of Puerto Rico is another place where crypto-enthusiasts — who, like former Hollywood actor Brock Pierce, are often crypto-millionaires from the continental United States — flock to establish crypto-communities.
HERNANDEZ: But is there more hype than hope in these crypto community plans, Tim?
Some cryptocurrency experts I spoke with said at least that “cryptopias” help attract more interest from foreign investors in countries like El Salvador, making them more economically innovative. But yes, so far they are more hype than anything else.
Some critics even call them a new form of economic colonialism. The Honduran government now wants to get rid of special economic zones like Próspera because it says foreign investors have too much control over them. In Puerto Rico, they criticize what they call “crypto-gentrification”. Residents of San Juan recently told the Washington Post that where crypto communities are promoted by these wealthy outsiders, they drive up rents and real estate prices, making it harder for local Puerto Ricans to afford to live there.