De-Dollarization in El Salvador: Vice President Ulloa’s Insight on Bitcoin Adoption

• Vice President Félix Ulloa reveals El Salvador’s plan to phase out the dollar for greater economic independence.
• Bukele’s government considers bitcoin as a tool to achieve financial autonomy, distancing from traditional fiat currencies.

El Salvador’s Vice President Félix Ulloa, in a recent interview with Russian media outlet RT, disclosed plans for economic reforms that could significantly reshape the nation’s financial landscape. During his visit to the International Economic Forum in Saint Petersburg, Ulloa revealed President Nayib Bukele’s intention to move away from using the U.S. dollar, aiming for greater economic independence.

The move to abandon the dollar isn’t new in Salvadoran politics. It’s been 23 years since El Salvador adopted the U.S. dollar alongside the local currency, the colón, eventually transitioning to a fully dollarized economy.

We want to have economic and financial liberalization, especially in terms of central banks, independence of fiat currencies, including the dollar, the euro, the pound sterling, all fiat currencies. That is why bitcoin has become an option. – Felix Ulloa, Vice President of El Salvador.

Over the years, multiple administrations have contemplated reversing this policy. President Bukele’s approach, however, suggests a direction towards using digital currencies, specifically bitcoin, as a means to achieve this financial autonomy.

According to Ulloa, the government has repeatedly considered the implications of reintroducing the colón or adopting other fiat currencies. The analysis concludes that such moves would be economically disadvantageous, particularly in the short term. Therefore, the administration is focusing on bitcoin as a decentralized option that does not rely on central bank policies.

This strategy aligns with global trends where nations seek alternatives to dominant reserve currencies. Russia, for instance, is pushing for de-dollarization in response to Western sanctions. The country has increased its trade with China using local currencies, the yuan and the ruble, and is also exploring digital currencies to bypass the dollar.

Despite the apparent advantages, the transition to bitcoin has its challenges. El Salvador’s pioneering Bitcoin Law, enacted in mid-2021, marked a significant step toward this goal. Yet, the adoption of cryptocurrency has faced practical and financial hurdles within the country. The global and local skepticism about bitcoin’s stability and viability as a national currency underscores the complexities of such a drastic monetary shift.

Moreover, Ulloa’s comments come at a time when geopolitical tensions and economic uncertainties are high. His openness about de-dollarization in Russia, a nation advocating for reducing global dependency on the dollar, underscores the strategic nature of El Salvador’s economic maneuvers.

The country’s shift from the dollar, once considered by former Finance Minister Alejandro Zelaya as “catastrophic,” is now viewed through a different lens. The current administration sees bitcoin not only as a financial tool but also as a potential for redefining economic independence.

Whether this will lead to a sustainable financial model or further economic challenges remains a critical question for policymakers and international observers alike.