Why developing countries are so fond of cryptocurrencies

Marc Filippino
Hello from the Financial Times, today is Tuesday, September 7, and this is your FT News Briefing.

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Marc Filippino
Boris Johnson is preparing to announce a significant tax hike today. And the military coup in Guinea worries people about aluminum production. Additionally, many developing countries find cryptocurrencies attractive. And the greatest experience begins today in El Salvador.

Jonathan wheatley
This is not a Mickey Mouse country, okay? It is a small country in Central America. It seems a little weird that it is doing this, but it is a test case.

Marc Filippino
I am Marc Filippino. And here’s the news you need to start your day.

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Marc Filippino
Today British Prime Minister Boris Johnson will announce a tax hike of more than £ 10 billion. The money will go to emergency support for the NHS. It will also be used to gradually reform the welfare sector in the UK. But FT political editor George Parker said members of Johnson’s own party were rather unhappy with the idea of ​​a tax hike.

George parker
The Conservatives promised the electorate in 2019 that there would be no increase in taxes or major tax rates. It would be a flagrant violation of the manifesto. Second, they like to think of themselves as a low tax party, although the track record shows that at present the UK tax burden is the highest since the late 1960s. So it is quickly losing that. reputation. And the third thing is how this tax hike will work. Basically it is a tax paid by all people on their income, but it does not include payments for rental income or dividends. And this does not apply to people over the age of 66 either. This means that the people most likely to be on welfare in the short term, at least not, will also pay anything more. And what is the point of this? Well the government is going to put a cap on the amount anyone can pay for social care in their lifetime of around £ 80,000. Now the goal is to prevent people from having to sell their homes if they face catastrophic costs for social care. You can see the criticism of this policy that you are addressing to low income people. They are probably renting a property, they are being asked to pay more. So people who live in homes worth a million pounds can bequeath their homes to their privileged children. It doesn’t sound fair. It’s not fair, but Boris Johnson will go ahead anyway because he thinks it is inevitable that this tax, some kind of tax is going to have to increase, it will be this additional cost.

Marc Filippino
George Parker is the political editor of the FT.

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Marc Filippino
The Guinean army said it overthrew the country’s president, 83-year-old Alpha Condé on Sunday. He was elected in 2010 and won a controversial third term last year. Guinea is the second largest producer of bauxite in the world, a raw material necessary for the manufacture of aluminum. And news of the coup put aluminum prices on Monday at their highest level in a decade. FT West Africa correspondent Neil Munshi said the coup leaders were trying to allay the fears of industry leaders around the world.

Neil Munshi
On Monday, the junta leader tried to somehow reassure the global mining industry by saying that ports would still be open for export, that the country’s mining companies should continue to operate as usual and that airports would be open again. . And he said it was all for the purpose of ensuring continuity of production, which somehow underscores the importance of the mining industry to Guinea’s economy.

Marc Filippino
Yes. Neal, can you tell us a little more about the importance of the mining industry in Guinea?

Neil Munshi
So mining and you know that bauxite production in particular makes up the bulk of the country’s exports and it’s extremely important to the country’s economy. But at the same time, over the years, it has been the subject of blatant corruption allegations involving big mining companies around the world and politicians. And that hasn’t done much for the Guinean people who remain among the poorest in the world.

Marc Filippino
Neil Munshi is the FT’s West Africa correspondent.

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Marc Filippino
Twenty years after adopting the US dollar as its national currency, El Salvador will today become the first country in the world to make Bitcoin legal tender. Those in favor of the move say it will reduce the fees Salvadorans pay to send remittances to their country, which accounts for a quarter of the country’s GDP. Critics say the rushed plan could cost poorer Salvadorans dearly when the price drops and provide a shield for money launderers. But whether you think it’s a good idea or a bad idea, it happens. And the FT’s Jonathan Wheatley says crypto isn’t just popular in El Salvador. It is really gaining ground in many developing countries.

Jonathan wheatley
What we have seen is that acceptance becomes adoption becomes quite high in places where people don’t necessarily trust the national currency. A currency must therefore serve as a medium of exchange, a store of value and a unit of account. And in all of these aspects of use, emerging market currencies are often imperfect. You often get runaway inflation or unpredictable inflation that can go up and down quite quickly. You get very sudden and unpredictable movements in the exchange rate. It can be very difficult to do things that, you know, some of us in advanced economies find quite easy to do. If I drive through Europe and get a parking ticket in Italy, once I get home I can pay for it by bank transfer from my checking account. And that sort of thing, if you’re in Lagos, is extremely complex and bitcoin and other cryptocurrencies make it a lot easier. And although obviously during the time it takes to complete the transaction, the value can move very strongly and cryptocurrencies move very strongly in value. However, when you are used to the value of your own national currency changing extremely quickly, then this kind of risk becomes much more acceptable.

Marc Filippino
Okay, Jonathan, from what I understand is that this is not necessarily new. Emerging markets tend to adopt new technologies early. Like cryptocurrency, this isn’t the first time we’ve seen this kind of transition in developing countries, is it?

Jonathan wheatley
No, absolutely. And in fact, you know, when a new technology comes along, a lot of times they tend to adopt it quickly because it allows them to jump over the absence of a previous technology. The example we give is M-Pesa in Kenya, which is now present in several other countries, which essentially allows people without a bank account to use their mobile phone accounts as bank accounts. Basically, telecom operators operate like a bank. And it allowed the unbanked to become banked without bank accounts. And what some people are hoping is that not only with cryptocurrencies, but with distributed ledger technology in blockchains, this is one of the applications of what is behind crypto, that other things could happen that would allow this kind of leapfrog. The classic example would be the cadastre or the cadastre. In general, in a large number of developing countries there is hardly any cadastre and certainly a very precarious cadastre. So people do not have rights to their own property and, more importantly, they are not able to take advantage of this right to lend for investment and growth. So you have a whole bunch of dead capital in many emerging economies that could be unlocked by a cadastre or a functional land register more generally. And some are hoping that the distributed ledger technology blockchain would allow that to happen.

Marc Filippino
Jonathan, I’m coming back to El Salvador a bit. You know, what are other countries looking at when they watch this experience unfold?

Jonathan wheatley
Well, one point we made in our Big Read was that this is not Mickey Mouse country, okay? It is a small country in Central America. It seems a little weird that he is doing this, but it is a democratically elected government. It is not under the sanctions of anybody. It is a member of the IMF. It is inserted into the international financial system. And, you know, one commentator we interviewed pointed out that this was a test case. I mean, we’ll see whether or not it’s possible for a country to accept cryptocurrencies and whether or not it works, it will be very, very interesting anyway.

Marc Filippino
Jonathan Wheatley is the FT’s Emerging Markets Correspondent. Thanks Jonathan.

Jonathan wheatley
You’re welcome. My pleasure.

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Marc Filippino
Before we go, let’s take a look at the movies, the first Marvel superhero with an Asian main character has made the buzz.

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I thought I could change my name. . . This time in your life. But I never could. . . Let’s give a shout.

Marc Filippino
Shang-Chi and the Legend of the Ten Rings made $ 90 million in ticket sales in the United States over the Labor Day weekend. This makes Shang-Chi the most successful Labor Day outing on record. The previous record holder was the movie Halloween. Shang-Chi’s exit was a bit risky on Disney’s part. It was the first film from its Marvel studio affiliate to debut exclusively in theaters since the start of the pandemic.

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Marc Filippino
You can read more about all the stories at FT.com. This has been your daily FT News briefing. Make sure to come back tomorrow for the latest business news.

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