Bitcoin boosters see Latin America as 'cryptopia.' Does the idea have any currency?
El Salvador wants to build Bitcoin City; Cuba hopes to skirt the U.S. trade embargo. But so far Latin America looks like anything but a cryptocurrency utopia.
Cryptocurrency, such as Bitcoin, is popular with a lot of Latin American countries: they see the virtual money as a prosperous alternative to conventional finance. Last year El Salvador became the first country to accept Bitcoin as legal tender. Last week Panama's Congress authorized its use — and Brazil's 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 supporters consider them “cryptopias," or cryptocurrency utopias, that will boost Latin America’s economic development. 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 crypto-hype and hope.
Here are excerpts from their conversation, edited for clarity:
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’re not controlled by government central banks but by the people who use them — so a lot of folks believe cryptocurrency will democratize money the way the internet democratized information.
That’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 make much effort to include them. So cryptocurrency is 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 get around economic sanctions like the U.S. trade embargo?
PADGETT: Yes — that’s why Cuba last year authorized cryptocurrency use and just last week issued regulations for it. The communist regime is hoping that because cryptocurrency operates outside the conventional international financial system, it could help Cuba buy and sell things without being blocked by the U.S. embargo.
Problem is, Cuba's authoritarian ally Venezuela tried something similar a few years ago with a cryptocurrency it called the Petro. It failed miserably.
A study reports what little bitcoin usage there is in El Salvador is among folks who are educated, middle class and in the banking system. So, not much democratization of money going on there.
HERNANDEZ: So El Salvador is probably into the Bitcoin boom more than any country in Latin America. How’s it going there so far?
PADGETT: The rollout, so far anyway, has been a bust. El Salvador set up an app, called the Chivo wallet, for bitcoin transactions. But few people use it — especially those “unbanked” people cryptocurrency was supposed to empower. The nonprofit National Bureau of Economic Research in Massachusetts reports that what little bitcoin usage there is in El Salvador is concentrated among folks who are educated, middle class and already in the regular banking system. So, not much democratization of money going on there.
HERNANDEZ: Didn’t the International Monetary Fund tell El Salvador it should dump bitcoin?
PADGETT: Yes, the IMF is now advising Salvadoran President Nayib Bukele to drop bitcoin because its value is just too volatile — too many wild up-and-down swings — for a poor, small economy like El Salvador’s to handle. Last month Bukele canceled his appearance at the big Bitcoin 2022 conference here in Miami (apparently because of the gang violence that's erupted again in El Salvador). And international investors are really balking at the billion dollars’ worth of bonds Bukele is trying to sell so he can build what he calls Bitcoin City.
HERNANDEZ: Right — tell us, what exactly is “Bitcoin City”?
PADGETT: Bitcoin City is this vision Bukele has for a community whose local economy will run only on bitcoin. He wants to build it near a picturesque coastal volcano in El Salvador — which, by the way, will supposedly provide geothermal energy for Bitcoin City, including all the massive amount of computer power it takes to create or “mine” 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 are we seeing 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 U.S. mainland — are flocking to establish crypto-communities.
HERNANDEZ: But is there more hype than hope to these crypto-community plans, Tim?
Some cryptocurrency experts I spoke with said at the least, the "cryptopias" help generate more foreign investor interest in countries like El Salvador, by making them look more economically innovative. But yes, so far they’re 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’re criticizing what they call “crypto-gentrification.” People in San Juan recently told the Washington Post that where crypto-communities are being promoted by these rich outsiders, they’re driving up rents and real estate prices — making it harder for local Puerto Ricans to afford to live there.