This paper explores Bitcoin’s potential as an alternative to a central bank-backed currency by analysing El Salvador’s recent adoption of it as a legal tender. Such monetary experiments are rare, providing researchers with a unique possibility to identify the macroeconomic effects of monetary regime changes. I find that a medium of exchange is not simply created by a government adopting a new legal tender but by the broad acceptance of it by the populace, which occurs due to substantial relative benefits of the new currency to the status quo. In particular, I am going to argue that El Salvador’s Bitcoin experiment failed, because the people of El Salvador did not perceive the need for a new currency and because Bitcoin does not fulfil any of the traditional functions of a currency.
Contents
Abstract
List of Figures
1 Introduction
2 Background
2.1 Bitcoin and its Usage as a Currency
2.2 A Brief (Monetary) History of El Salvador
3 El Salvador's Bitcoin Experiment
4 Conclusion
Bibliography
- Quote paper
- Niklas Humann (Author), 2023, An Analysis of El Salvador’s Failed Bitcoin Experiment, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/1322688
