El Salvador Obtains Crypto as a Path Toward Climate and Economic Security
El Salvador is typically known for its excellent coffee and abundance of volcanoes, but today, under the auspices of President Nayib Bukele, the country is more often known for embracing Bitcoin as legal tender. Bitcoin and other crypto-based currencies that rely on blockchain technology have exploded onto the scene, and they do have their merits, particularly for poor and climate-insecure countries, such as El Salvador. The country suffers from high homicide rates, serious human rights abuses due to an ineffective security sector, a relatively corrupt judicial system, and regularly suffers from natural hazards, such as floods, extreme temperatures, earthquakes, volcanic eruptions, etc. El Salvador turned to Bitcoin as another way to safeguard their economic security while simultaneously leveraging the frequent disasters that strike the country by geothermally mining the Bitcoin from the volcanoes that litter the nation. This climate defense policy, where El Salvador utilizes its steady supply of natural energy to generate economic security, may not function for every country around the world but serves as an example of how safeguarding and creatively utilizing critical environmental resources can pay dividends financially and socially.
On September 7th, 2021, El Salvador officially became the first country to have Bitcoin on its national balance sheet, with President Bukele arguing that it would reduce remittance fees, which make up 22% of the nation’s GDP, and give the nearly 70% of unbanked Salvadorans access to financial services. The President would go further on November 21st, announcing plans to construct a ‘Bitcoin city’ at the base of the Conchagua volcano with cryptocurrency used to fund the project that, once completed, would employ sustainable geothermal energy to power Bitcoin mining. In that same month, Bukele made his ‘whale’ status known when he ‘bought the dip’ and purchased an additional 100 Bitcoins after the digital currency took a nosedive in part due to pandemic- and regulatory-related fears. These developments highlight how the current government understands that they needed legislation that divested future investments away from a fossil fuel-driven economy to one that is resilient to future socioeconomic shocks that will result from increasingly ferocious extreme weather events.
El Salvador already has made progress in achieving net-zero, halving its use of fossil fuels for power generation since 2010 and increasing its use of geothermal to nearly 25% of the country’s total electrical production, while adding other green energies, such as biomass, hydro, wind, and solar, into the mix according to the 2019 government data analyzed by IRENA. Greater renewable energy use has translated into better rates for consumers. The average monthly price per megawatt-hour in El Salvador was nearly $139.17 ten years ago but lowered to roughly $81.31 at the end of 2019. Electricity costs could be further reduced once significant energy infrastructure projects, such as the Pacific Energy gas plant in Port d’Acajutla, are completed and the country achieves greater energy base diversification. Additionally, through the use of Bitcoin to fund additional future energy-related investments that end up being used to mine even more Bitcoin, the country would experience significant economic windfalls at a relative discount while generating further energy production. El Salvador is already dependent on remittances and the export of commodities, such as coffee, but Bitcoin could result in the country becoming a nexus for future digital economic activity, rapidly transforming and diversifying the economy without dramatically disrupting the vulnerable communities.
To advance these economic and energy agendas, El Salvador should attempt to convince other SIEPAC members, whose electrical power grids are interconnected, that they should reduce their electrical costs by collectively uptaking cryptocurrency and using it to pay for further infrastructural integration. Many countries that choose to participate in the cryptocraze will likely construct settlements similar to the proposed city around the Conchagua volcano since these ‘digital mining colonies’ solve many of the outstanding criticisms surrounding cryptocurrencies. Namely that digital currencies require an excessive amount of energy and are unreliable since no entity can modify financial mistakes, as highlighted by the man who appears to have lost $350 million in Bitcoin or how prices have dropped due to the internet shutdowns in Khazakstan where much of the currency is mined globally. Cryptocurrency has other notable flaws: it’s a way for bad actors, including terrorists, corrupt governments, or traffickers to circumvent oversight and is susceptible to significant price fluctuations because its value is only tied to its perceived value in society, unlike the U.S. Dollar which is backed by the Federal Reserve. El Salvador seems to have still made the insightful decision to include Bitcoin as part of its national financial mechanisms, even if its implementation got off to a rocky start since it will help the country reach net-zero and diversify its economy while providing new avenues for security.
Climate defense plays a critical role in the success or failure of future governments. Countries that pursue policies that securitize the climate crisis and seek to adapt to future challenges, such as carbon taxes, sea walls, more resilient infrastructure, etc., will be the best positioned to govern in a world dominated by climate change. El Salvador’s decision to accept Bitcoin as legal tender is emblematic of financial or economic climate defense policies and should help the country solve many of its’ vexing problems. Although I am not 100% sold on the crypto-crazy until we have a Yellen-coin, it is clear that many developing countries should consider these monetary climate defense policies, such as blockchain-based currencies, since these mechanisms could complement the many other adaptive policies or tools that will be necessary for future success.
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