IMF and Moodys attacking El Salvador on Bitcoin law

Since El Salvador ratified the decision to accept Bitcoin as a legal tender, traditional financial organizations around the world have been freaking out. They moved up a gear recently, as the Bitcoin law is moving closer to coming into force on September 7.

This week two IMF officials issued “warnings”, pointing at crypto price volatility and, unsurprisingly, two more arguments in a lazy politician’s store – AML and environment.

Yesterday, Moody’s downgraded El Salvador’s rating to Caa1 from B3, notably because of the Bitcoin law, citing “weakened governance, raising tensions with international partners – including the United States”.

Ok, we all know that the US is the most financially powerful country now, and its power stems from the Bretton-Woods agreement after the WWII. Member countries were obliged to maintain fixed exchange rate by tying their currencies to gold, and since the US had the biggest gold reserves, the majority just sold their gold to the US at $35/ounce and pegged their money to the dollar (of course, the US promised that everyone could redeem their gold if they wanted). IMF was the organization created to address any potential disequilibrium within the exchange rates.

We know what happened next. In 1971 President Nixon unilaterally decided to close the “gold window”, effectively throwing the previous promise out of the window. And gold is now traded at $1815.

What did IMF do to remedy this injustice? Not much to be honest. But they are pretty scared now, when a small Latin American country made an effort to free itself from the dollar dependency and allowed a cryptocurrency to circulate alongside it.

What about rating agencies? The 2008 crisis showed they swam with the flow, refusing to open their eyes, and some would argue even catalysed the underlying problems, making the crisis so much worse. Now again, they are taking the “party line” and condemning crypto – as if El Salvador could have any chance to rise from poverty through ever-depreciating dollar that the Fed is printing ad nauseum.

So can we just stop acting as if the world order is fixed in stone and the (mostly American) financial organisations know what’s better for everyone else? The current situation is a consequence of very smart post-war negotiations and bold moves that followed, and it is about to change.