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Bitcoin News , Crypto Bitcoin News ,How will bitcoin affect the geopolitics of El Salvador?

Bitcoin will be successful in El Salvador, boosting profits from remittances, industry and remuneration. Per capita GDP is expected to double over the next decade as remittances, the energy sector and tourism all grow.

El Salvador made waves in June 2021 by pairing bitcoin as legal tender with the US dollar. This was a historical event. The use of bitcoin has the potential to dramatically benefit the small Central American country, but by how much? And what would it look like?

Let's briefly examine the geopolitical situation in El Salvador and try to predict how bitcoin will affect the following:

History and Politics

History of El Salvador
Before Spanish colonization, the region of El Salvador was inhabited by two cultures. More relevant to the modern state and capital city of San Salvador are the Pipils, who arrived in about 900 AD, possibly from the northwest due to language and religious ties to the Aztecs. The second culture is the Lenca, which populate the eastern parts of the country with strong cultural ties with central Honduras.

The territory of El Salvador was frontier for several pre-Columbian Mesoamerican cultures. First the Olmec, then the Maya, then the Lenca, and finally the Pipil from central Mexico. Despite this cultural heritage, El Salvador never became the center of a great empire and faced tense tribal warfare. The only impressive classical site is called Tzumal, which became uninhabited around AD 1,200, long before the Spanish arrived (though there are several smaller sites across the country).

There are few historical sources before the Spanish. If the Pipils were descendants of the Toltecs, they did not mimic the scale of the megalithic buildings seen in central Mexico. The most important reason is the natural limits imposed by geography on their development.

The area that is present-day El Salvador has seen some periods of relative prosperity, the Tzumal era from 700 to 900 AD and two such eras immediately before the arrival of the Spanish. In the 16th century, their political organization was a somewhat decentralized union of city-states, dominated by the city of Cuzcatlán (modern day San Salvador). They had an extensive irrigation system and long-distance trade routes to Mexico in the northwest and, along the coast, to Costa Rica in the south.

I suspect that if we had more records going back, the political structure would have been the same. City-states loosely related to a dominant culture would be bound together to fight a common enemy, but most of the time was spent in internal battles. The Pipils never arose more than a local influence in Mesoamerica, nor were they consolidated into a strong central state for long.

New Spain and Independence

Spain incorporated Central America into the vast administrative district of New Spain in the early 16th century. It lasted 300 years, ending with the War of Independence (1810 to 1821), which dissolved New Spain into several successor states, a federal republic of Central America, from present-day Costa Rica, El Salvador, Guatemala, Honduras. was made. and Nicaragua.

This federation was unlucky from the beginning. This fused together many different groups of different cultures, and by 1838, it had begun to fall apart. El Salvador, with San Salvador serving as the capital of the Union, was the last of the five countries to abandon and declare a new government in 1841.

The experience of the Federal Republic of Central America is a great model for the history of the region as a whole. The possible synergy of local closeness and integration assigns these nations to a united government, with San Salvador at the center. However, geopolitical realities make this impossible.

20th century

The 20th century in El Salvador was, for the most part, a continuation of that. It was a constant struggle against political might, war with neighbors and civil war. It was not until 1931 that El Salvador achieved the milestone of its first freely contested election, only to be torn down by a military coup nine months later.

In the 1970s, the internal situation in El Salvador deteriorated to a new low, culminating in the El Salvador Civil War (1979 to 1992). It was a brutal struggle with atrocities committed on both sides. It is estimated that up to 75,000 were killed. This conflict, its causes and consequences largely form the opinion of the West about the country.

New ideas & nb bukele

There is new hope and enthusiasm in El Salvador today. The 2019 elections appear to be a milestone in its history, with the election of a young and motivated new president, Nayb Bukele.

He shook the country and immediately implemented sweeping reforms. The homicide rate, which was among the highest in the world, has dropped by more than 60% and mass violence has decreased dramatically. While they have employed some tactics that may offend Western sensibilities, they are designed for the specific challenges of El Salvador described above. And it seems they are working.


The El Salvadoran economy was traditionally dominated by agriculture until very recently. Over the past century, much of the country's exports have shifted from agricultural cocoa and indigo to coffee and have declined in importance dramatically. Currently, service activities make up 69.3% of GDP (travel: 32%, Makiela: 25%), manufacturing industry 16.1% and agriculture activities only 5.9%.

Bitcoin profits are not taxed as it is now legal tender. There are also import/export tax, sales tax and municipal tax. A corruption index of 104/179 places it far better than all other Central American countries except Costa Rica.


The Dominican Republic–Central America FTA (CAFTA-DR) is the first free trade agreement between the United States and a group of small developing economies: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, as well as the Dominican Republic (note: El Salvador). Caribbean/East Coast is the only signatory without a port).

It was signed in 2004, and although it deals with tariffs and promotion of service areas in these countries, it is important to note that since the Caribbean-Basin Initiative of 1984, U.S. Almost all imports in the U.S. were already tariff-free. Therefore, CAFTA mainly helped with US exports and US foreign investment in these countries. It is the second largest Latin American trade area for the US, second only to Mexico.

Free trade zone

The free trade zones in El Salvador are interesting. They are tax-exempt zones for export-oriented services and manufacturing. However, sales made by these companies domestically are still taxed at the normal rate.

The special thing is that he has wide, multi-party popularity. These areas provide a great source of income to the local population and enable the creation of vital infrastructure in the country. It also fits in with the pre-colonial past of a more decentralized governance structure.


US Remittances are a very important source of income for the country, with about one-third of the households receiving this type of payment. The total has grown quite dramatically in recent years, reaching $5.7 billion in 2020 and 24% of GDP. This is almost twice the total export earnings of the country.

This amount of cash injection in the country has yielded mixed results. Although wages have risen sharply, the country still has problems attracting domestic workers, who are happy to make a living on their remittances from family members abroad. This leads to migration from Honduras and Nicaragua to El Salvador for relatively higher wages.

Although the crime rate in the country was very high until recently, tourists are generally quite safe. Before the pandemic, tourism was growing rapidly, and there is hope that it can regain that growth.

Tourism-related activities make up 8% of the country's GDP (2019). Of course, 2020 and 2021 were a big hit for this revenue, but the government plans to bounce back. It has unveiled a new "Brand El Salvador" campaign that will highlight the country's many travel destinations with local crafts and culture.

El Salvador is a very small country, the capital of which can be reached from San Salvador to almost any corner of the country in 40 minutes. It has surfing, beaches, cultural archeological sites and local arts and crafts. If the decline in mass violence can continue, the U.S. And there's a huge opportunity to become a destination for Canadians, and a growing opportunity to attract Mexican and other Central American tourists.

Traditional financial system

Since 2001, El Salvador has used the US dollar as legal tender. This was a big step as it effectively gave up its monetary policy and control of the printing press. All government programs must be paid for with fiscal policy or international debt, making the government more financially responsible. Its banks can still issue dollar-denominated loans, which is how money is printed, but the use of USD has kept a lid on corruption and inflation.

As a developing nation with no capacity to get out of trouble, El Salvador has in recent years looked to international bodies for loans. It was not just 2020 and the pandemic that forced El Salvador to reach out for funds, with the most recent loan from the World Bank starting in 2019 after a six-year hiatus. Total loans from the World Bank and IMF stood at around $900 million in 2020 ($520 million and $390 million, respectively).

When the country announced the adoption of bitcoin as legal tender, it drew immediate comment from these international organizations. The IMF specifically said it would examine the impact of the decision on future loans.

El Salvador banking is relatively stable and well capitalized. In the 1980s, the banking system was nationalized, but has now been privatized again, consisting of 14 institutions: 12 private banks (96%) and two state-owned banks (4%). According to the World Bank Group, as of 2016 "ATM and POS terminal deployments in El Salvador are below average for Latin America and the Caribbean, but above average for low-middle income countries."

As part of its bitcoin strategy, the government has contracted with bitcoin ATM provider Athena to add 1,500 bitcoin ATMs in El Salvador.


"Demography is destiny," as the saying goes, but geography sets the limits.

El Salvador has several important geographical features that shaped its politics and culture; A warm coastal plain, the Sierra Madre Mountains, a temperate central plateau and several active volcanoes. In Central America, population centers tend to be in mountain plateaus with a more temperate climate, and El Salvador is no different. San Salvador has been the economic and population center of the country for more than 1,000 years.

A survey of El Salvador's history, economy, geography and demographics suggests that bitcoin adoption will be a huge success.

Rivers, Rails, Roads and Ports
In El Salvador, there is a severe lack of large-scale industrial transport.

According to the Logistics Capability Assessment (LCA) tool, "commercial navigation along the rivers of El Salvador is almost non-existent." There is no contiguous stretch of navigable river to link the trade network together. In fact, even though the country is so small, it still has three, roughly equal and distinct, regions defined by water: the far west Paz River basin, the central Lempa basin, and the Gulf of Fonseca bordering Honduras and Nicaragua. However, none of these provide access to cheap and easy transport inland.

According to the LCA, the condition of the railroad is also extremely limited, "the private railway existing in the country [is] out of service since 2002," and was recently re-launched into a public passenger rail. The country appears to have very few, perhaps not, kilometers of commercial track.

Almost all commercial transport within El Salvador is done by road. This is only possible because it is such a small country and the road network is extensive and well-organized. The port of Acajutla, for example, is 85 kilometers from the capital San Salvador (52 mi), and is connected by a good road.

In terms of ports, Acajutla is the main port handling over 70% of the country's cargo. That being said, it is not even close to being a major port. It is the 47th largest by volume in Latin America/Caribbean and 7th in Central America (Panama not included). The eastern port of La Union occupies a wonderfully strategic location on the Bay of Fonseca. Completed in 2010 and billed as the most advanced port in Central America, it has remained virtually unused since then.

future projects

El Salvador is currently working on several transportation-oriented projects. I will highlight only two.

The first is a dry canal in coordination with Honduras, which will connect central Honduras with the port of La Union, and perhaps in the future it will be extended to the Atlantic to Pacific corridor. The second project is a network of roads around the Bay of Fonseca, again, to better connect the Port of La Union to Honduras and Nicaragua.


El Salvador has huge potential for energy in the form of hydro and geothermal sources. It is already the largest geothermal producer in Central America and has plans to expand its lead.

Typically, when smaller countries have energy reserves, they are in the form of fossil fuels. This gives them the ability to easily export oil or natural gas to the global market. However, in the case of El Salvador, energy must be produced domestically and cannot be exported cheaply. This creates an interesting dilemma of being an energy exporter, not an energy resource.

El Salvador is a member of the Central American Electrical Interconnection System (SIEPAC), a project completed in 2014 that connects 37 million consumers in Panama, Costa Rica, Honduras, Nicaragua, El Salvador and Guatemala. The system provides a regional market for El Salvador's energy production but is not ideal. There is huge loss in transmission lines resulting in very expensive long distance electricity.

Trade route

El Salvador is the only Central American nation, other than Belize, without access to both the Atlantic and Pacific Oceans. This clearly limits its ability to connect to potential trade routes. It is located along a land route from Panama to Mexico, but that's not saying much, it pales in comparison to the importance of maritime trade.

El Salvador lacks a major port and is unlikely to ever have one due to its small population and the lack of internal trade routes such as waterways and rail to other regions of Central America. El Salvador does not sit on a strategic geographic chokepoint, as do Panama or Singapore, so container ships are not specifically bound for El Salvador, stopping there when it is a relatively short trip to Mexico or Panama. There is no reason for.

There is an opportunity to expand trade through the Bay of Fonseca and the port of La Union, but expensive infrastructure is needed. There is also some potential for expansion of Pacific trade relations with South American countries.


A survey of El Salvador's history, economy, geography and demographics suggests that bitcoin adoption will be a huge success.
El Salvador's demographics are excellent, it has the highest population density in Central America, and is partially in modern demographic transition. Over the past 50 years, the fertility rate has fallen from six births per woman today to the replacement rate. High religious faith in the country could help maintain fertility rates, along with a rise in populism and nationalism globally. El Salvador may still survive a painful demographic transition.

For the next several decades, the El Salvador economy should benefit from its older millennial generation in their mid-20s, entering their most productive and highest-consuming years today.

US A high prevalence of English speakers due to deportation has created opportunities for many companies that need English speakers, such as telemarketing and call centers. There is a well established primary education system and a large pool of unskilled workers. It was a re-industrialization U.S., similar to Mexico. A great partner for The daily minimum wage between Mexico and El Salvador is also comparable in 2021, with national averages of around $10 and $11, respectively.

The reason to examine this geological profile of El Salvador is to see the potential benefits the adoption of bitcoin may bring to the country. Could El Salvador become another small country miracle like Taiwan, UAE, Singapore or Luxembourg? Exploring the above, several opportunities emerge where bitcoin may provide some distinct advantage and perhaps address some of the challenges.

Bitcoin can instantly add value to remittances in El Salvador. With 24% of the country's GDP coming from remittances, eliminating duties on these payments could bring immediate benefits. For example, in traditional remittance networks, small payments may result in fees that reach up to 50% of the total value sent. If a family member is in the U.S. and sends $50 a week home to El Salvador, half of that could go into fees. Bitcoin would immediately solve that issue, possibly bringing billions of dollars to the country in the first few years.

This is an obvious advantage for remittances, but there are some potential downsides associated with more money coming into the country.

First, there is the potential for inflation. As more money enters the country, prices can be bid up locally for products. Second, it can also increase unemployment (about 10% for those aged 15 to 24). Remittance recipients will have less reason to move out and get a full-time job, perhaps even allowing another family member to stay at home. Third, fewer workers will push wages up more competitively and attract more immigration from Central American neighbors, leading to some cultural tensions.

On the net, a dramatic reduction in remittance fees would be a huge positive for El Salvador, however, it could have many unintended consequences.

Bitcoin mining

The specific opportunity for the bitcoin industry is mining. As we have seen recently with respect to China, the regulatory risk to these actions is very real. The adoption of bitcoin as legal tender in El Salvador mitigates that risk to almost nothing. The country also has huge domestic energy potential that it cannot export, and is actively seeking investments to expand its capacity. Bitcoin mining for both El Salvador and Bitcoin brings all these factors together in a very market-driven and profitable way. While bitcoin will achieve a higher hash rate and strengthen its clean energy narrative, El Salvador will benefit from greater economic activity, the launch of a new industry in the country, and the ability to harness the abundance of clean energy.


The favorable taxes and regulation surrounding bitcoin will go a long way in attracting people who own bitcoin to the country. This in itself will not be a gamechanger, but several thousand bitcoiners could move to El Salvador in the next few years. These permanent residents will have above-average assets with unique skills that can benefit the entire economy.

Bitcoin is also a great tourist currency. It is global and does not suffer from arbitrary international constraints. When the tourism industry in El Salvador is set up to fully accept bitcoin, it will often address specific concerns for world travelers. If these destinations hold bitcoin as part of their cash balances, they will also benefit from currency appreciation.


Bitcoin will be successful in El Salvador, boosting profits from remittances, industry and remuneration. Per capita GDP is expected to double over the next decade as remittances, the energy sector and tourism all grow. This would put El Salvador on top of the Central American countries excluding Panama. If the new government is able to continue its current momentum against crime, Panama's per capita levels are likely to pick up in the next 20 years.

However, this transition will not turn El Salvador into a stagnant powerhouse country with extremely high living standards. Poverty will be further reduced, but the best businessmen, scientists, engineers, geniuses, etc. will be sent to the U.S. Or will be constantly drawn in by Mexico's naturally large markets. Today political power is highly centralized in the person of Bukele, but this means that it can only go in one direction, towards its natural roots of a more decentralized region.

Using history as its guide, stability and scarcity are not common in the local conflicts of the past few years. While it is possible that El Salvador eventually conquered its geographical reality, it is unlikely. What is more likely is that it came together at a particular time, guided by a larger stage of life, but would soon revert to old animosity.

Therefore, after a period of prosperity over the next few decades, violence and war would eventually return between the interests of different internal cultures and different geographic regions, as well as the interests of neighbours. The return of the region's geopolitical realities will not undo all of the progress that has been made, but it does put the region's unique challenges and culture into perspective.

Historically, El Salvador has punched above its weight in Central America and will continue to do so. Adding bitcoin as fiat is very suitable for its economy and brings many opportunities.

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