El Salvador made history in September 2021 when it became the first country in the world to adopt bitcoin as legal tender. The move was hailed by some as a bold experiment that could pave the way for more financial inclusion and economic growth. However, the reality has been far from rosy. Since its launch, the bitcoin project has faced technical glitches, public protests, legal challenges, and international criticism. Moreover, the country’s bitcoin holdings have suffered significant losses due to the volatile nature of the cryptocurrency market.
El Salvador bought 2381 bitcoins in September 2021, worth over $105 million at the time. The country also received a donation of 1 bitcoin from an anonymous benefactor. However, as of November 17, 2023, the value of El Salvador’s bitcoin stash has dropped by more than 20%. This means that the country is in the red by about $21 million on its bitcoin investment.
The decline in value is partly due to the sharp correction that bitcoin experienced in November 2021, after reaching an all-time high of over $68,000 on November 10. Bitcoin plunged by more than 15% in a matter of days, dragging down other cryptocurrencies as well. The drop was attributed to various factors, such as profit-taking, regulatory uncertainty, power outages in China, and a fake news report that claimed that Walmart was accepting Litecoin as payment.
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El Salvador’s president, Nayib Bukele, has remained defiant and optimistic about his bitcoin gamble. He has claimed that the country is saving millions of dollars in remittance fees by using bitcoin, and that the adoption of the digital currency will boost tourism, innovation, and foreign investment. He has also announced plans to build a “bitcoin city” near a volcano, where residents and businesses will pay no taxes except for a 10% contribution to fund infrastructure and security.
However, not everyone is convinced by Bukele’s vision. Many Salvadorans have expressed their dissatisfaction and distrust of the bitcoin scheme, citing its complexity, instability, and environmental impact. Some have taken to the streets to demand that the government revoke the law that made bitcoin legal tender and restore the US dollar as the sole official currency. Others have filed lawsuits against the government, arguing that the bitcoin law is unconstitutional and violates human rights.
The international community has also raised concerns about El Salvador’s bitcoin experiment. The International Monetary Fund (IMF) has warned that the move could pose serious risks to the country’s macroeconomic stability, financial integrity, and debt sustainability. The World Bank has refused to assist El Salvador with the implementation of the bitcoin project, citing environmental and transparency issues. The United States has expressed its worries about the potential for money laundering and terrorist financing through bitcoin.
Assuming that the country did indeed purchase one bitcoin per day over the past year, CoinDesk estimates El Salvador’s holdings would sum to 2,744 bitcoins as of Nov. 14. Based on the median price of BTC over each of those days, the country’s average purchase price would have drifted down to roughly $41,800.
El Salvador’s bitcoin adventure is still in its early stages, and its long-term effects are yet to be seen. However, so far, it seems that the country has taken a huge gamble that has not paid off. El Salvador remains in the red on its bitcoin holdings and faces multiple challenges and uncertainties ahead. Bukele has kept pretty quiet about El Salvador’s purchases since and the exact amount of bitcoin the country now owns is not clear as there is no public government record.
Australia’s Inflation Rate is “still too high” – Senior RBA Official
In a recent speech, a high-ranking official from the Reserve Bank of Australia (RBA) acknowledged that the country’s inflation rate remains above the desired level and that the process of bringing it down will take longer than expected. The official explained that the RBA has been implementing a two-stage strategy to reduce inflation, which involves first lowering the expectations of future inflation and then adjusting the actual inflation outcomes.
The first stage has been successful, as evidenced by the decline in inflation expectations since 2020. However, the second stage will be more challenging, as it requires dealing with various supply-side factors that have been pushing up prices, such as labour shortages, global commodity costs and supply chain disruptions. The official stressed that the RBA is committed to achieving its inflation target of 2-3% over the medium term and that it will use all the tools at its disposal to do so.
However, he also cautioned that the timing and pace of monetary policy adjustments will depend on the evolution of economic conditions and inflation pressures, and that there is no predetermined path for interest rates.
Data from Australian Bureau of Statistics (ABS)
The latest data from the Australian Bureau of Statistics (ABS) shows that the annual inflation rate in Australia rose to 3.8% in the September quarter, well above the Reserve Bank of Australia’s (RBA) target range of 2-3%. This is the highest inflation rate since 2008, driven by rising costs of housing, transport, food and energy.
The RBA has been maintaining its ultra-low cash rate of 0.1% since November 2020, as part of its stimulus package to support the economic recovery from the COVID-19 pandemic. However, as inflation pressures mount, the RBA may have to reconsider its monetary policy stance and start to tighten its policy settings sooner than expected.
The RBA has indicated that it will not increase the cash rate until actual inflation is sustainably within the target range, and that this is unlikely to happen before 2024. However, some economists and market analysts have argued that the RBA is behind the curve and that it should act more proactively to prevent inflation from getting out of control.
The main argument for raising the cash rate sooner rather than later is that it would help to anchor inflation expectations and prevent a wage-price spiral from developing. A wage-price spiral occurs when workers demand higher wages to keep up with rising prices, which in turn pushes up costs and prices further, creating a vicious cycle of inflation.
The main argument against raising the cash rate too soon is that it would risk derailing the economic recovery and hurting the most vulnerable sectors of the economy, such as small businesses and households with high debt levels. A higher cash rate would also appreciate the Australian dollar, which would reduce the competitiveness of Australian exports and dampen the growth prospects of the trade-exposed industries.
The RBA faces a delicate balancing act between keeping inflation under control and supporting the economic recovery. The next stage in bringing down Australia’s inflation rate will depend on how the RBA assesses the underlying drivers of inflation, the outlook for growth and employment, and the trade-offs involved in adjusting its monetary policy settings.