- Renowned economist Steve Hanke faults El Salvador’s adoption of Bitcoin as a legal tender.
- He thinks the move could drain off the U.S. dollars, which could collapse the economy.
- Hanke also said many citizens do not have access to bank account, which is also a problem.
More reactions have continued to trail El Salvador’s recent decision to make Bitcoin (BTC/USD) a legal tender. Professor of Applied Economics at Johns Hopkins University Steve Hanke is concerned that the country’s resolve on Bitcoin could cripple the economy.
He termed the move as an “economic stupidity, saying it could have major negative consequences on the country’s economy. The problem can become so severe that the country could be drained of U.S. dollars through Bitcoin transactions.”.
El Salvador may run out of money
He noted that the issue is highlighted by the fact that El Salvador doesn’t have a local fiat currency, as the economy relies on the US dollar for payments and transactions. As a result, the country may likely run out of money if it starts adopting Bitcoin as a legal tender.
Hanke also noted that the South American country could be the target of Bitcoin holders from other countries who want to cash out the currency.
According to him, this could dry off the country’s dollar supply, leading to an economic meltdown. He also stated that the decision to make Bitcoin a legal tender is likely influenced by criminal elements who want to use the opportunity to launder funds.
Bitcoin adoption is a problem in El Salvador
Hanke also faulted the reason behind the decision of El Salvador on Bitcoin legality, pointing out that it may not serve its intended purpose. He said the business and economic composition of El Salvador makes it very difficult to adopt Bitcoin. That’s because it will be a major challenge for most citizens without access to bank accounts to work with cryptocurrencies. After all, they need to convert them to fiat currency.
Also, another major setback is the fact that transaction fees are high when they are converted to U.S. dollars, El Salvadorian official currency.
Hanke, who was a senior economist in President Ronald Reagan’s administration, has previously called Bitcoin a speculative asset. He doesn’t believe that Bitcoin will live up to its expectation but has high regard for other cryptocurrencies. In April, he tweeted that “cryptocurrencies are the future of money. Bitcoin is not.”