Dollar Dependency in US LA relations

After independence, much of Latin American foreign policy had been molded by its relationship with the United States. So I would like to discuss two important dynamics in the relationship, currency/ dollar dependence. The first represents the defining dynamic in the modern relationship between the United States and Latin America.

Many Latin American countries have had economies struggling with inflation in past decades. Some have been able to overcome that inflation, while others have failed to implement successful policies eliminating excessive inflation. Two examples are Argentina and el Salvador. The poor stability of the local currencies forces the citizens of these countries to seek dollars as a haven from inflation. In El Salvador, this has created an uncomfortable situation for the government, where their society is built on the dependence on the dollar and the fiscal policies of the United States. It puts el Salvador in a vulnerable position when the federal reserve bank lowers interest rates and effectively lowers the purchasing power of all the citizens of el Salvador. Effectively the United States has the power to export its inflation. Argentina, on the other hand, has a slightly different method of dealing with inflation. Agenrtiians have developed a culture where they spend their paychecks immediately since grocery prices can change in a  week, and what’s left of the pay, they save in the form of dollars and cryptocurrency. Both countries are developing crypto as a tool to exit dollar dependency. 

There has been a lot of media coverage concerning el Salvador’s adoption of Bitcoin as a legal tender. There has been a lot of criticism and concern expressed for a country giving bitcoin legal status as a legal tender since that makes it more difficult to ban another nation’s currency. CNBC says that “The country faces plummeting economic growth and a high deficit.”. The media coverage influences bond prices and the ability of el Salvador to borrow. IMF has also spoken out in concern for el Salvador’s use of Bitcoin. The president argues against the US Media coverage critical of his adoption. He thinks it’s a good economic maneuver. In a way, media coverage can influence economies, so whatever the US media covers will have an impact. In this case, this CNBC article, which is very critical of Bitcoin adoption, describes the issues of bitcoin use. But we also have to understand this is in the context of other domestic attitudes critical towards crypto. That can be motivation coverage like this.

Works Cited:

https://www.cnbc.com/2022/10/13/el-salvadors-bitcoin-holdings-down-60percent-to-60-million-one-year-later.html https://www.bloomberg.com/news/features/2022-11-04/el-salvador-s-bitcoin-revolution-is-failing-badly?leadSource=uverify%20wall