From El Salvador to Africa, the Next Currency War Pits Populists against Bankers
The global monetary system is facing historic challenges.
First, a decade of easy money and perceived low price inflation convinced our current generation of central bankers that there were no costs to aggressive policy. The result was a monetary binge during the covid lockdowns that has sparked currency crises around the world, including in Turkey, in Japan, and throughout Latin America.
These issues predated Russia's invasion of Ukraine. This massive disruption of the global economy has further stressed supply chains and energy markets. Policy makers are now acknowledging food shortages—and the deaths that will result from them—as inevitable, though the corporate press is largely ignoring them. Standing in solidarity with Ukraine not only means many European governments do not know how they will keep the heat on in the winter, but also that the European banking system will be forced to eat Russian debt.
These losses are all the more concerning given the impact of the European Central Bank's reckless negative interest rate policies, which necessitated higher exposure to riskier financial assets. European policy makers were depending on higher economic growth to make up for emergency spending. Instead, the European Union is waging an economic war that has pushed it to the brink of a new recession.
Of course, it is ultimately the dollar that backs the current monetary order, but the Federal Reserve is facing its own set of unprecedented challenges. While official consumer inflation numbers are already hovering around 9 percent, actual Americans are seeing 20–30 percent price increases in necessities like housing, food, and gas. This has pushed members of the Fed to signal an institutional commitment to increasing interest rates, including embracing fifty-point and higher rate hikes.
Will they maintain this posture as the economy nears a recession? Will Democrats reconfirm Jerome Powell as Fed chair if they think he will?
Regardless of what central bankers do going forward, the reality is that the world is on the brink of a global economic crisis, with confidence in governing institutions deservingly low. This is the latest in a long list of failings of the "PhD standard" that has enriched the elite, stolen from the masses, and empowered a technocratic class with incredible powers and in ways that even most elected officials do not understand.
These global challenges, as dire as they are, have created an environment for solutions to arise. To this end, an interesting pattern is surfacing that could demonstrate practical solutions for a political moment that often lacks them.
Last year El Salvador became the first country to recognize bitcoin as legal tender. While other countries—and even some US states—had created favorable regulatory environments for cryptocurrency, El Salvador, led by President Nayib Bukele, was the first state to officially recognize crypto. While there are valid criticisms of the details of the El Salvador plan, the political ramifications are significant.
First, this move was instantly recognized as a threat to the International Monetary Fund and the United States. The former warned the Bukele regime against implementing the new rules, warning that the policy "entails large risks for financial and market integrity, financial stability and consumer protection." Meanwhile, a bipartisan group of US senators has proposed legislation aimed at the Latin American country—legislation they argue is needed to ensure that the embrace of bitcoin won't enrich bad actors. (All senators that sponsored the bill continue to support billions of dollars of American aid being sent to militia groups in Ukraine.)
At the end of April, the president of the Central African Republic announced that CAR will join El Salvador in recognizing bitcoin. In doing so, an advisor close to the president grounded the decision as one that will give the country an advantage over others.
"Our nation must be able to pursue its destiny and join the ranks of those who not only fully understand the importance of Blockchain technology, but are eager to legislate it," Obed Namsio, the director of the president's cabinet, said in a statement.
While part of bitcoin's appeal for both countries is the potential to attract investment from the crypto industry, there is another important dynamic at play: in both cases the push for bitcoin acceptance came from the executive branch, not the central bank. As Bloomberg reported, CAR's move was made independent of central bankers entirely:
The Central African Republic's move to rush into making Bitcoin a legal tender caught a key stakeholder by surprise: the region's monetary authority…. The Bank of Central African States, which manages the Central African CFA franc, the regional currency used by six countries, hadn't been informed, the spokesman for the bank said Friday, without elaborating.
While the Central Reserve Bank of El Salvador has helped facilitate its country's legal recognition of bitcoin, the push for the move came entirely from President Bukele and has been strongly criticized by former bank officials. Bukele, who at one point labeled himself the "'world's coolest dictator," is controversial for reasons beyond currency competition and has strongly leaned into being a tech-savvy populist leader.
What is interesting here aren't the underlying motivations of Bukele or CAR president Faustin-Archange Touadéra, but that we are seeing an era of elected leaders who recognize the advantage of leading on monetary issues independently of monetary authorities. If inflation continues as a global political issue, we are likely to continue to see the push for monetary alternatives come from political populists—not well-credentialed policy experts.
Will this trend carry over to American politics? It remains to be seen. A recent Politico article dubbed American right-wing populists' increased interest in crypto "Ron Paul's revenge." Figures like Peter Theil and Steve Bannon, both of whom are big winners in J.D. Vance's victory in this week's Ohio Senate Republican primary, have both talked about crypto being a major weapon against the regime. The corporate press is already freaking out at the idea of the Republican Party being remade into a modern Jacksonian populist platform.
History shows that few issues can challenge political order quite like the consequences of severe inflation. In the face of the coming hardship, central bankers and globalist institutions are going to demand more power to respond to the crisis they created. Bitcoin gives their political opponents a weapon against them.
Going forward, it will be interesting to see if El Salvador and the Central African Republic remain outliers or become the model others follow.