Jeffrey Frankel, former economic advisor to Clinton administration, says that the El Salvadorean government adoption of Bitcoin is “pure folly”. He admits to being “baffled” by cryptocurrencies as a whole. Is he right, or is he yet another protector of the traditional monetary system who just doesn’t understand what the crypto sector is about?
An article was published on the British Guardian online news platform this morning. The article took the line that El Salvador’s adoption of Bitcoin as legal tender was pure folly. Jeffrey Frankel, Professor of Harvard’s John F Kennedy School of Government, was arguing the point.
To begin with, Frankel argues that he doesn’t understand why cryptocurrencies are needed. He says that they can’t fulfil the basic requirements in order to be classed as money because of their high volatility.
He doesn’t take into account that a very new asset class with such a tiny percentage of the world’s wealth in it is bound to be volatile in its early stages of growth.
He declares that cryptocurrencies aren’t backed by entities with “reputation”, such as government, private banks or “trusted” institutions. Although he doesn’t go into why cryptocurrencies grew out of that trust being broken countless times by exactly these self-same institutions.
His idea of where cryptocurrencies came from is an “anarcho-libertarian distrust of central banks”. It could certainly be said that on this point he isn’t far off the mark. He admits also that “many central banks, especially in developing countries, have a history of debasing their currencies”.
The professor doesn’t know why El Salvador has taken the unprecedented step of adopting Bitcoin as legal tender, yet he touches on the points as to exactly why this country has felt no option but to do exactly that.
He calls the decision “surreal”. In his pro traditional debt-based Ponzi scheme mind he just cannot conceive of anyone, let alone a country, having the gall to go up against such august and untouchable organisations as the IMF, the Bank for International Settlements (BIS), the Federal Reserve, and all the other central banks around the world.
Frankel talks of “illegal transactions”, and how such a use should not be encouraged. These so-called illegal transactions, for example in the decentralised finance niche, are making decent income for investors. Should they be flocking to the banks and saving accounts that offer an average 0.06% return on their money?
The professor would no doubt also say that all these people dabbling in crypto don’t even have “accredited investor” status. The vast majority of them don’t have the wealth to be investing in such profitable assets. Surely, they should be debarred – as is the case in the traditional financial system.
You can be sure that such people as the professor will now always mention the “energy use” buzz phrase. That one has been hot in the media ever since it was seized upon – quite rightly, for what it’s worth. Bitcoin does need to put its house in order in this respect, and bitcoin miners are taking steps to do so.
However, none of these people throwing this particular mud even question how much energy the traditional financial system is using. Since all the hysteria over Bitcoin’s energy use became common place, many articles were put forward to show that Bitcoin’s energy use was very low in comparison with the finance sector, and gold production industries, yet this is never mentioned.
Source: Bitcoin Magazine
Frankel talks of the “chronic US fiscal and current-account deficits”, and that in his view, in spite of this, there was NOT a “strong long-term downward trend in the dollar’s value”.
It would perhaps be amusing to see this so-called economist produce any chart that would support the view that the dollar value was not going down over the course of many decades. All fiat currencies are in a debasement race. The facts speak for themselves.
Finally, the good professor ends his discourse with saying that people can “run the risk of forgetting passwords and losing their bitcoin”, and that “at least half of El Salvador’s population have no access to the internet in the first place.”
Economists should stick to what they are good at, which is trying to predict how economies will move. Professor Frankel is just another in a long line of apologists for the existing financial system that have absolutely no understanding whatsoever of the cryptocurrency/blockchain movement.
Sound advice would be to go away and spend a few months delving into what Bitcoin is about. Yes, you are possibly going to lose lots of friends in high and wealthy places, but at least you would then have the knowledge to be able to make sound and considered judgements.
For what it’s worth, El Salvador probably is taking a very big risk. Volatility most certainly will be an issue. Should the powers that be succeed in pulling Bitcoin down, then El Salvador’s young president might not survive.
However, if this does happen, just know that it was probably too early. When change happens, it usually takes time, and many good and brave people are trodden down by those resisting the change. History will tell us though who was on the right side of this change.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.