Bitcoin of the realm: El Salvador’s experiment

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Hello and welcome to the Intelligence from the Economist. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Good grades just aren't enough anymore in the grand rat race of education. In some East Asian countries, the competitiveness has become so all consuming that that governments are having to step in. And there's a sense among many critics that novels these days should tackle big contemporary issues. Our culture editor considers Sally Rooney's latest work finding great fiction in a narrower focus on the timeless topics of love and growing up. But first, in El Salvador today, a world first, Bitcoin becomes legal tender. It's a personal campaign for President Nayib Bukele, who says the move will help both economic development and inclusion of the countries unbanked.

This will generate jobs and help provide financial inclusion to thousands outside the formal economy.

That will take some convincing. Both the World bank and the IMF have warned against the move, worrying about economic stability and the crypto cryptocurrency's notorious environmental costs. Many Salvadorans aren't keen either and have protested against the policy. And when Nelson Rauda, who writes about El Salvador for the Economist, went out in the capital, San Salvador, he found plenty of people who simply weren't ready. Store owner Carolina Zavola said she wasn't preparing for what's being called B day because she doesn't understand it. She reckons she'll eventually catch up, as she did 20 years ago when the country made the US dollar the official currency. Some, though, are embracing the change. In the town of Antigua Cuscatlan, just outside San Salvador, a store run by Adela Avendano has been taking bitcoin for months, selling mostly to foreigners. So she walk Nelson through a purchase. The Economist's Wall street correspondent Alice Fullwood says it's a bold experiment from a millennial leader with a growing reputation, both good and bad, for shaking things up.

Three months ago, the president of El Salvador, Nayib Bukele, announced at A bitcoin conference in Miami that that El Salvador was in the process of writing a law that would mean that bitcoin was accepted as legal tender.

We didn't took care of the beautiful idea that we create our own future, that we as humanity can do almost anything that we imagine. I believe bitcoin could be one of these ideas. That is why next week I will send to Congress a bill that will make bitcoin a legal tender in El Salvador.

Since then, there has just been a whirlwind of activity. That law was written in pass just three days later by the legislature in El Salvador. And it's a pretty stringent law. It says not only is bitcoin legal tender and is accepted for taxes and in settlement of debts, but also the law is going to make businesses in El Salvador accept bitcoin as payment for goods or services.

So why has El Salvador decided to do this, to make bitcoin legal tender?

The president has put forward a few reasons why he thinks that adopting bitcoin as legal tender might be a good move for El Salvador. First, it could help the country win foreign investment. It might sort of lure in deep pocketed crypto investors. He's also also argued that it might reduce transaction costs broadly in El Salvador's financial economy. So for instance, there is a diaspora of around 2 million Salvadorans who live overseas, and they send remittances back to El Salvador worth about 20% of GDP each year. And the current way that they do that, using cross border bank transfers, are slow and expensive. Moving bitcoin from wallet to wallet could reduce the costs of those transactions. And lastly, a lot of Salvadorans are sort of not financially included. Very few of them have bank accounts. Many of them are very poor and sort of can't afford traditional financial services. So there is an argument that bitcoin and cryptocurrency adoption might help make those things easier.

Easier for those who can get their heads around it, I guess. How does this actually work in practice?

In order to use bitcoin as their method of payment, Salvadorans will have to download a digital wallet. The El Salvadorian government has created its own. It's called chivo, which is slang for cool. And if you download that, you'll get $30 worth of free bitcoin to encourage people to use it. If you don't download it sort of soon, that will be an online app on your phone. And then you need to fund that with bitcoin. And there are a couple of ways you could do that. Either you can use Sort of one of the big cryptocurrency exchanges, or they've rolled out about 200 bitcoin cash machines across the country. And basically, you can go up to one of these machines and you can deposit dollars into it, and then you either key in the address for your Bitcoin wallet, or you sort of scan a QR code and that will sort of upload those dollars, convert them into bit, and put them in your wallet. And you can then use these bitcoins at businesses to carry out transactions.

And so is everybody on board with this move?

There is quite a lot of opposition to the adoption of Bitcoin. So for locals who might have to use it, many of them are fearful of its volatility. A lot of them don't really understand what it is or why they would want to use it. And if you zoom out to the bigger picture, El Salvador seems to be coming sort of increasingly undemocratic and authoritarian. And some critics say that this sort of measure is a distraction from all of these sort of more nefarious things that are going on. For instance, the President has sacked many of the senior judges in El Salvador, and he's now got the highest court to approve him running for a second term as El Salvador's president, which is technically unconstitutional. And all of this has led to some instability in the country. So there have been recent protests in the capital city, San Salvador, Which have demonstrated sort of lack of confidence among citizens, many of whom are unfamiliar with Bitcoin and sort of don't really want to use it.

And in any case, it's a grand financial experiment here. How has the rest of the financial world viewed it?

The response from the international community, with the exception of the sort of crypto crowd, has been quite sceptical and in general, opposed. Both the World bank and the IMF are opposed. The World bank refused to help the President roll out the scheme, saying that it sort of risked macro instability. It sort of potentially would increase the risk of the sort of black economy growing because Bitcoin is sort of less easy to trace than sort of traditional financial payments. The IMF is also opposed for the same reasons. It sort of says that it's not transparent, it's volatile, it risks macro instability, et cetera. Moody's, the sort of big ratings agency, has also downgraded El Salvador's debt rating, mainly on the basis of this sort of law, introducing this new element of volatility into tax revenues.

So what's your view in the big picture? Do you think this will work?

I mean, in the short term, it seems as though sort of most businesses really just aren't ready for this. And so I imagine people might try to use it and they might be frustrated in those attempts, but as people become more accustomed to it, it may be more widely accepted. Most of the businesses on the ground who are readying themselves to accept it say that if they do do that, they're not going to start using it as what people call the unit of account. So they might be willing to accept payment in Bitcoin and then immediately convert it back into dollars. So the question of will this experiment be a success in terms of will you be able to go and pay for things in bitcoin in El Salvador? I think you probably will over time, even if it's a bit more difficult in the beginning. The grand question of whether this will ultimately be a success on any of the sort of big metrics that you might care about, does the great economy boom, does it help reduce remittance costs? Does it help lure in foreign investment? I mean, you're obviously not going to have any sense of whether or not it's been a success on any of those questions for quite some time.

Thanks very much for joining us, Alice.

Thank you, Jason.

Parents just want what's best for their children and will go to some lengths to get it. In some countries, that's led to a cycle of ever increasing educational one upmanship, all that after school tutoring, those extracurricular activities, they dominate the lives of parents and children. And some governments are treating that as cause for concern. As Chinese media reporting a crackdown on education technology by the Chinese government they.

Would ban, they have suspended classes and aren't really sure when they're going to resume. And that's because of the regulatory crackdown.

That urge to achieve it has its costs.

I think those arms races are particularly ferocious in East Asia, in Japan, South Korea, now China.

Simon Cox is a senior economics writer for the Economist.

These are countries where there's a strong meritocratic ethic, there's a strong value placed on education. There's also a high stakes testing that takes place across the whole country. In particular the tests that determine what universities you get into. And so given that there's a tremendous demand for attempts to get ahead educationally. And as a result, there's this whole shadow education industry as it's called, private tutors, online technological companies offering tutoring. By one estimate, in China's cities, pupils spend over 10 hours a week on this kind of after school tuition. This is tremendously stressful it's costly and it's attracted the ire of China's government and South Korea's government and they've all been trying to limit this kind of shadow education industry.

But pressures to succeed at exams and doing after school tutoring and the like isn't limited to East Asian countries. Why is it so acute in those countries?

People often look at the structure of the education system, these high stakes exams, but I think it's deeper than that, actually. I think in countries like South Korea and China, there's quite a narrow definition of success. There are quite a limited number of secure, good, prestigious careers in slightly more egalitarian societies, you think, in particular of parts of Western Europe, it seems like there are more ways to be successful and there are probably lower stakes to failure as well. So I think the narrow definition of success and the particular fear of failure does add an extra level of severity to this arms race in East Asia.

How to limit it, though, when people are so deeply engaged in these kinds of arms races?

So some of their attempts to limit it are quite clumsy, quite draconian. South Korea, for example, has a 10pm curfew on cramming schools. Inspectors would wander the neighbourhoods looking to see if schools had their lights on. And in China recently, the government said that after school tutoring firms had to register as non profit entities. They couldn't seek profits, they couldn't list on the stock market, they couldn't raise foreign capital. This had a particularly stark effect on a lot of ed tech companies that recently had attracted a great deal of foreign capital and a great deal of enthusiasm from investors. This has caught everyone by surprise, but perhaps it shouldn't have, because China's leader, Xi Jinping, has been signalling for some time his disapproval of the role that profit seeking and private enterprise is playing in education, which he feels should be a non profit, government led endeavor. And also there's a great concern in China that all of these pressures on child rearing are leading to fewer children. Families just simply can't afford to have more than one child. And that obviously has implications for China's future and its attempt to rejuvenate China.

But what about parents who feel now very invested in these kinds of efforts and funding all the tutoring and so on? What do they want?

Parents are quite divided. Certainly this tutoring is costly to them, it's stressful, but for some parents, they feel it's their only way to get even with wealthier families who can afford to have tutors come to their home privately. And at least these edtech firms give people a more accessible, cheaper version, a way to access the best tutors. Nationally, there have been attempts to introduce a little bit more flexibility in how students are evaluated, but that hasn't been terribly popular with parents. And if you broaden the criteria on which students are evaluated, in some ways you just make this obstacle course broader and you give especially wealthier parents more avenues in which they can help their children. Some parents think the high stakes exams are at least meritocratic. It's a way in which you can get into university even if you don't have any connections. So whilst they're very stressful, at least the stress is sort of evenly distributed.

Well, what evidence is there that all that extra studying leads to better students, better academic outcomes?

If you look at surveys of shadow education around the world, there actually isn't all that much of it in some places like Norway and Sweden, and these are countries that have very good educational results. So shadow education isn't necessary to produce well educated children. And I think in those societies there is obviously a much stronger safety net, a much more equal distribution of income. So perhaps the drive to get ahead is less compelling.

So what's the solution then for this arms race in countries like China, do you think? Is it simply doing away with the exams that add all that pressure?

I don't think it's that simple. I think that obviously the first, best solution is to achieve a more egalitarian society in which the costs of failure are lower. But until you get there, perhaps you need to emphasise actually a little bit more differentiation in education. You could perhaps have a stronger vocational educational system, which means a different way for children to succeed and to thrive, you could perhaps have fewer tests, perhaps have tests a little bit earlier. If you see education essentially as a filter, if you see it as a way of signaling underlying ability, if you see it as an obstacle course, then in a way what you want is an obstacle course that's no longer than necessary, that's no more frequent than necessary. And it seems pointless prolonging of the torture to have quite so many tests quite so far into a student's career. In some ways, competitiveness is intrinsic to education. Education will always be something of an arms race, but if you have multiple plural definitions of success, that might mean that these races are somewhat less burdensome on parents and children alike.

Thank you very much for joining us.

Thank you.

Today, the third novel by Sally Rooney called Beautiful World Where Are youe? Is released in Britain and America. Her first conversations with friends caught critics attention and the television adaptation of the second Normal People was the BBC's most streamed series of 2020.

You were saying the other day that.

You like me by the photocopier you said followed the relationship of Connell and Marianne from their days in school to time in university and adulthood. It'd be awkward in school if something happened with us.

No one would have to know.

Ms. Rooney is often referred to as the first great millennial author, and her third book is prompting big questions about what counts in this millennium as serious fiction.

Sally Rooney is a great bard of 21st century relationships.

Andrew Miller is the Economist's culture editor and author of our new column Backstory.

She writes about young people at school and university and in the years thereafter. She writes about friendship and romance and the slightly kind of hazy boundary between the two people coming of age and negotiating this slightly daunting adult world. Her characters spend a lot of time navel gazing, in other words, and indeed gazing at each other's navels. And in this respect, it's kind of at odds with a lot of successful, prize winning, anyway, contemporary literary fiction.

How so? At odds in what way?

These days, a lot of serious authors, or at least authors who want to be taken seriously, tend to write about big picture issues, you know, political issues, whether it's climate change or civil wars or immigration. And I think recently the novel has taken this political turn where authors feel obliged partly because of the information universe day and we all live in, where we now have CNN and the Internet and you can't turn off what's happening in the world. And so the inclination is to let it into the fiction because not doing so can seem like a moral failure on the part of either the characters or the author or both. And politics does intrude in Sally Rooney's books. I mean, she is herself an avowed Marxist and her characters do talk about politics and class features and money, but she's above all a domestic writer. She writes about feelings and relationships.

So why do you think Ms. Rooney chooses to buck the trend then?

I don't know if it's a choice exactly in the sense I think all authors can only write, you know, the novels they can write. But I think it's fair to say that Ms. Rooney herself has some qualms about the kind of fiction that she writes. And actually, in this latest novel, Ms. Rooney's characters voice some of these opinions himself. One of them is a novelist who in her biography resembles the author of the novel. And she and her best friend debate the value of fiction and whether fiction really has much purpose in the 21st century. And, you know, she says at one point, do the protagonists break up or stay together in this world? What does it matter? And that's obviously a startling sentiment to encounter in a novel which is about, you know, whether the protagonists are going to break up or stay together.

And what's your view on that question, on whether it matters?

I think partly these criticisms of Sally Rooney's fiction as being parochial and narrow are a misunderstanding and misrepresentation of what the English novel is and always has been. Daniel Defoe kind of invented it by accident at the beginning of the 18th century. And in contrast to epic poetry and previous literary forms that dwelled on the fate of nations, the founding of cities and grand heroes, this was an art form that was populated by ordinary, recognisable people. And ordinary people have often made for the best fiction in English. And so the author Sally Rooney most reminds me of is Jane Austen, who similarly builds her plots around young people, young people in their 20s falling in love and miscommunication, and will they? Won't they? And Sally Rooney's books are very reminiscent of that only has to be said, with lots and lots of extra sex.

And so aside from these grand questions, you think her fiction meets that criterion of great fiction?

My own personal view is that she doesn't need to worry about this, the author. Every work of art should be judged on what it is and what it's trying to do and not on what it isn't. I mean, there's no point criticizing an apple for not being an orange. And her books are these kind of books. They could address huge political questions. That's very hard for a novel to do without it getting in the way of the story. They can wow you with the electricity of their language or the subtlety of their characterization. And books can be successful and indeed even be great in a wide variety of ways. And I think, in their own terms, Sally Rooney's books succeed more even than she herself is willing to acknowledge.

Andrew, thank you very much for your time.

Thanks for having me, Jason.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and you can subscribe to the economist@examiner.com intelligenceoffer. The link is in the show notes. See you back here tomorrow.