El Salvador's Decision On Bitcoin Is 'Nonsensical' And Could 'Collapse The Economy,' Economist Says

Steve Hanke — the professor of applied economics at Johns Hopkins University who served as a senior economist under President Ronald Reagan from 1981 to 1982 — said that Bitcoin BTC/USD adoption could "completely collapse the economy" of El Salvador.

He has gone as far as to say that "dark forces are clearly behind this."

What Happened: During an interview with financial news outlet Kitco News published on Tuesday, Hanke said that El Salvador becoming the world's first country to adopt Bitcoin as its legal tender a week ago, could be very bad news for its economy.

He warned that Bitcoin holders from China and Russia could now use the country's infrastructure as a way to cash out their coins:

“It has the potential to completely collapse the economy because all the dollars in El Salvador could be vacuumed up and there'd be no money in the country. They don't have a domestic currency.”

In March, Hanke described Bitcoin as a speculative asset “with a fundamental value of zero,” and he bashed the coin again in an April tweet stating that “cryptocurrencies are the future of money. Bitcoin is not.”

During yesterday's interview, he said that the elected representatives in El Salvador are "in a word, stupid" and questioned how Bitcoin could act as a legal tender in daily transactions where most citizens rely on cash. 

“You're not going to pay for your taxi ride with a Bitcoin. It's ridiculous [...] You've got 70 percent of the people in El Salvador don't even have bank accounts," he added.

Statements released yesterday by the Central American Bank for Economic Integration suggest the same Hanke.

The institution believes that El Salvador's adoption of Bitcoin "creates many spaces and opportunities" through innovation.

The organization announced that it would also form a technical advisory group to help the country in its adoption of Bitcoin.

Read also: El Salvador Plans To Mine Bitcoin Using Energy From Volcanoes

A major reason for the adoption of Bitcoin provided by El Salvador was to use it to power cross-border remittances, an idea that Hanke described as "nonsensical."

He pointed out that Bitcoin will have to be instantly converted to dollars to be spent — completely ignoring that in many cases buying Bitcoin to send it to another country for it to be immediately sold for the local currency is often much cheaper than just wiring the money through traditional means.