Bitcoin Meets Geopolitics

What you need to know today in crypto and beyond

June 11, 2021

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LAYER 2 FOR TWITTER?: In a tweet Thursday evening, Twitter CEO Jack Dorsey hinted at a possible integration of the Bitcoin layer 2 Lighting Network, replying “only a matter of time” to a user asking him to build the blockchain-based payment protocol into Twitter or BlueSky, the app’s decentralized network.

MOVING SLOW: Brazil’s central bank (BCB) says that it needs more time to roll out its central bank digital currency. In an email to CoinDesk, the BCB noted that the timeframe of it depended on the development of current projects and international landscape.

GREEN LIGHT: A note from the Texas Department of Banking on Thursday gave a green light for state-chartered banks to custody crypto assets. This does not represent a new law, but affirms that state-chartered banks can provide crypto custody services under compliance with certain legal frameworks and with adequate protocols in place.

WATCH OUT BINANCE: WazirX, Binance’s Mumbai-based exchange, was issued a show cause notice by India’s Enforcement Directorate. A statement said the investigation was initiated on the basis of an investigation looking into money-laundering on illegal Chinese online-betting apps. WazirX denied receiving the notice.

–Helene Braun

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Putting the news in perspective

The Takeaway

Bitcoin Meets Geopolitics

I’ve been visiting family since last Tuesday. As joyful as that vaxxed-up post-COVID reunion has been, I sure wish it hadn’t overlapped with the most significant single development in the history of cryptocurrency so far: the adoption of bitcoin as legal tender in El Salvador.

Naysayers have worked to pick apart the move over the past week, and there are certainly many unknowns. Those include the basic logistical challenge posed by exchange rates and bitcoin’s slow and expensive on-chain transactions, and questions about the possible authoritarianism of Salvadoran President Nayib Bukele.

But those details pale in comparison to the broad outlines: For the first time, a nation has adopted a currency that neither it nor any other single entity controls.

This is particularly significant because El Salvador had previously used the U.S. dollar as its sole currency, so adding bitcoin to the picture, in even a limited form, reduces the influence of the U.S. and other rich countries. The use of the dollar as a global medium of exchange and savings provides huge benefits to the U.S., and losing that dominance, whether to bitcoin or the yuan, would have major negative impacts.

The backlash from establishment figures in the U.S. and Europe has been somewhat muted, but you can absolutely smell the fear.

Former President Donald Trump on Monday responded to the plan by saying: "Bitcoin, it just seems like a scam. I don’t like it because it’s another currency competing against the dollar." Democratic Sen. Elizabeth Warren, without referencing El Salvador directly, chose the moment to attack cryptocurrency broadly.

The International Monetary Fund chimed in Thursday morning, saying El Salvador’s plan raises “a number of macroeconomic, financial, and legal issues that require very careful analysis.” This may sound anodyne enough, but when you recognize that the IMF is effectively a tool of economic coercion used by rich northern nations to bully developing countries in the global south, it takes on an ominous tone.

The IMF is dominated by advanced economies and makes loans to developing countries in economic or financial crisis. Though founded with high ideals, since the 1970s the IMF has used these loans as a coercive tool to advance first-world interests as part of a neoliberal strategy that Naomi Klein termed “The Shock Doctrine.” The IMF has consistently tied its emergency loans to drastic economic “reforms” that usually amount to brutal austerity for working people and free rein for international corporations. Under the most repulsive of these provisions, the IMF even prohibited some countries from providing free education to children in the name of fiscal discipline. It was without hyperbole that one repentant development bank operative titled his bestselling 2004 expose "Confessions of an Economic Hitman."

There has been fierce criticism of the IMF for more than two decades, but it has stubbornly stayed the course. As recently as 2019, it loaned Ecuador $4.2 billion in exchange for stringent austerity and privatization measures. The IMF argues these vampiric reforms produce long-term growth. Even if that is true, they inflict huge costs in both national sovereignty and global stability. And the massive benefits to major corporations must just be a coincidence.

You can begin to see why the IMF might regard a developing nation’s adoption of an independent currency system as deserving of “very careful analysis,” as a spokesperson put it. At least some of the pressure it’s able to exert on behalf of its Euro-American masters is based on their control of the global banking system, which bitcoin can bypass. Once decentralized finance enters the picture, things could get even wilder. Remember all the hoops Ecuador jumped through for $4.2 billion? The total capital on DeFi systems today is roughly $60 billion. It is not a great leap to imagine a future in which the IMF is no longer the lender of last resort for countries in crisis – or an effective tool of imperialism.

The question of 39-year-old Bukele’s authoritarianism is less clear-cut.

Bukele has indeed taken significant steps to weaken checks on his power, including firing judges and anti-corruption officials. The U.S. has also accused several of Bukele’s allies of corruption. Salvadorans nonetheless apparently adore their president, who has a steady approval rating near 90%.

Again, the broader context is crucial. Bukele began his political career as a member of the Farabundo Marti National Liberation Front, a party that grew out of a leftist guerrilla movement after the 1992 end of the country’s 12-year civil war. The FMLN was supported by the Soviet Union in its fight against a right-wing Salvadoran military regime, which regularly deployed paramilitary death squads to execute and terrorize civilians.

Now prepare to be shocked, shocked I say: The Salvadoran regime’s campaign of terroristic repression was supported by $1 million to $2 million in aid per day from the United States of America. Such funding was part of the U.S. Cold War policy of using developing countries as proxy battlefields against the Soviet Union. Over 75,000 Salvadoran civilians are believed to have been murdered by U.S.-backed forces between 1980 and 1992.

This U.S. has violently intervened in the domestic politics of Latin American countries at least 14 times since the beginning of the 20th century, according to a tally by the Associated Press. That has continued even with no USSR to fight, right up to the present day. There is evidence of C.I.A. involvement in the 2019 overthrow of Evo Morales in Bolivia, and in the engineered “Lavo Jato” scandal in Brazil. Lavo Jato was effectively a coup-by-court which deposed the beloved Luis Inacio Lula da Silva and handed power to the psychopathic and inept Jair Bolsonaro.

Bukele’s resistance to anti-corruption measures should be seen in this grim context: In Latin America, “anti-corruption” is too often code for “an American plot to overthrow your government.” Bukele himself seemed to hint at this in his response to some of the corruption allegations, when he snarkily expressed shock that the investigation did not find a single case of corruption in the right-wing ARENA party that opposes him.

You can see, then, why a left-wing South American President might look for ways to reduce his country’s dependence on the U.S. dollar and the U.S.-controlled financial system. Bukele is not emphasizing this angle – and if you were in his shoes, would you? But you can bet it’s very much on his mind, and other leaders of developing nations are watching closely. Much attention has been focused on direct economic benefits that may accrue to El Salvador from its move toward Bitcoin. But the real upside would be if Bitcoin can help shake off the yoke of the rich, shameless northern bullies who have cost the country and its neighbors so much.

–David Z. Morris

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