The bitcoin experiment in El Salvador is a warning to other countries

By Charles Riley, CNN Business

that of El Salvador “Bitcoin Day” did not go particularly well.

The much-vaunted adoption of bitcoin as legal tender by the impoverished country on Tuesday was marred by street protests, technical glitches and a extreme drop in value controversial digital currency.

What didn’t go well?

• “Chivo Wallet,” a government-created storage app, was not immediately available on major app stores. By the end of the day, it had appeared on both Apple and Huawei platforms.
• Hundreds of people marched against bitcoin during various protests in the capital, the The Financial Times reported.
• The price of bitcoin started the day around $ 53,000 before plunging to 19%, according to data from Coinbase. The digital currency has since recouped some losses to trade at nearly $ 46,270.

President Nayib Bukele, a right-wing populist who is the driving force behind the Bitcoin initiative, has taken the dramatic price drop in its wake. “Buy the dip,” he joked on Twitter. He also joined supporters of online crypto in praising large companies such as McDonald’s for accepting bitcoin as a form of payment.

Supporters have argued that adopting bitcoin as legal tender will help Salvadorans avoid costly fees on overseas remittances, which totaled nearly $ 6 billion last year, or about a quarter. of GDP.

Bukele may be successful in ironing out the initial technical issues, but the biggest risks in bitcoin will linger for a long time into the future.

El Salvador does not have its own currency, but rather relies on the US dollar. Adding another currency to the mix that is prone to wild changes in value will further complicate the government’s budget and tax planning.

It’s also a nightmare for households and businesses, which now have to spend time and resources deciding whether to keep their funds in dollars or bitcoin. With crypto prices subject to wild swings, the stakes are high.

Another risk: Adopting bitcoin as legal tender may also encourage crime to flourish, according to the International Monetary Fund, which agreed to provide $ 389 million in emergency funding to El Salvador in April 2020.

“Without strong anti-money laundering and anti-terrorist financing measures, crypto-assets can be used to launder ill-gotten money, finance terrorism and evade taxes. This could present risks to the financial system, balanced budgets and relations with foreign countries and a country’s correspondent banks, ”the IMF said in July.

Overview: Rating agencies are not impressed. In late July, Moody’s Investors Service pushed El Salvador’s debt deeper into unwanted territory, citing “a deterioration in the quality of policymaking,” including the government’s decision to adopt bitcoin as legal tender.

Moody’s said the country remains vulnerable to funding shocks that could jeopardize the government’s ability to repay its creditors from January 2023. This means El Salvador will likely need another IMF bailout.

Other countries should follow El Salvador with extreme caution. The IMF has urged governments to use new forms of digital currency only when they can maintain financial stability, efficiency and equality.

“Trying to make crypto-assets a national currency is an inadvisable shortcut,” the IMF warned.

Chinese investors pay $ 1 billion into BlackRock’s new fund

BlackRock’s new investment fund in China – the first wholly owned by a foreign company – has attracted $ 1 billion from Chinese investors in its first week.

The world’s largest asset manager said on Wednesday that the fund – which has now raised 6.68 billion yuan – was officially established this week and has attracted more than 111,000 investors. It started offering investment products to individual Chinese investors at the end of last month.

“We are very proud to have taken this important milestone for our fund management business in China and we are grateful for the overwhelming support from investors,” said Rachel Lord, President of BlackRock and Head of the Asia Pacific Region.

Remember: BlackRock’s announcement comes days after the company was criticized by billionaire philanthropist George Soros for its efforts in China, which he called a “blunder.” The launch of BlackRock’s new product came just weeks after recommending investors invest in Chinese assets.

“Dumping billions of dollars into China now is a tragic mistake,” Soros wrote in an op-ed published Monday by The Wall Street Journal. “This risks costing BlackRock customers money and, more importantly, harming the national security interests of the [United States] and other democracies.

Soros pointed to Xi’s recent crackdown on private companies, which he sees as proof that “the regime views all Chinese companies as instruments of the one-party state.” He also referred to “a huge looming crisis in the Chinese real estate market” and Xi’s efforts to redistribute wealth. These trends, he said, “do not bode well for foreign investors.”

Who is right ? Time will tell us.

The humble shipping container

You probably don’t spend a lot of time thinking about shipping containers. But these humble building blocks of global trade have become incredibly rare and extremely expensive during the pandemic.

Before Bell’s lead author Julia Horowitz spent the last two weeks reporting on shipping containers and their contribution to a global shipping crisis. Arrears are now looming during the holiday shopping season.

Before the coronavirus hit, companies could rent a 20-foot or 40-foot box with relative ease, allowing them to move goods at low cost. But empty boxes remain scattered across Europe and North America, while supply chain delays mean more is needed to fulfill orders.

Here’s the result: A year ago, companies would pay around $ 1,920 to reserve a 40-foot steel container on a standard route between China and Europe, according to data from Drewry, a research consultancy. maritime.

Now they are spending over $ 14,000, an increase of over 600%. During this time, the cost of purchasing a container has effectively doubled.

“We are seeing record rates, especially in the spot market,” said John Fossey, head of container equipment and rental research at Drewry, referring to just-in-time booking trips on ocean carriers. .

Experts in the container industry don’t know when the prices will drop. But they agree on one thing: the situation is not going to be resolved any time soon.

Gene Seroka, executive director of the Port of Los Angeles, said supply chain issues could persist until 2023.

Following

GameStop and Lululemon Athletica announce profits after the closing bell.

Also today: Data on US job openings at 10:00 a.m.ET.

Coming tomorrow: ECB decision and US unemployment claims.

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