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On Bitcoin and Border Security

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On Bitcoin and Border Security

August 26, 2021

How El Salvador’s plan to make crypto legal tender might change the “push”and “pull” factors

The crisis at the U.S. southern border continues unabated with Customs and Border Protection reporting a more than three-fold increase in encounters at the border compared to last year. While 2020 was a down year for illegal border crossings (perhaps due to the pandemic), the current surge in illegal migration continues a decade-long trend that has largely been driven by the migration of families and children from Central America.

The “push” and “pull” factors that cause mass migration

For years, American leaders have debated the root causes of our border security and illegal immigration problems. The discussion between politicians on the left and right often focuses on so-called “push” and “pull” factors. Democrats often argue that violence, poverty, and fear “push” Central Americans to make the dangerous journey across Mexico. Republicans often argue that economic opportunity, lax border security, generous asylum policies, and an implicit promise of amnesty “pull” migrants to America.

As a former Senate Homeland Security and Governmental Affairs Committee staffer, I’ve watched more hearings on this topic than I can count. My view is that both sides are right. While it’s impossible to fully understand the motives of the more than 500,000 people who have crossed the border illegally from Northern Triangle countries so far this year, it’s likely that some combination of these “push” and “pull” factors spurred their decision to make the dangerous trip.

For this reason, addressing the complex root causes of the ongoing border crisis will require a more nuanced policy solution and compromise than most elected officials from either party are willing to admit. Therefore, it’s likely mass migration and the crisis at the Southern border will continue until a significant change alters these push and pull factors.

El Salvador’s plans to become the crypto capital of the world

But it’s possible that such a revolutionary, societal change may have started on June 5th.

That day, El Salvador President Nayib Bukele announced that the Central American nation would become the first in the world to recognize Bitcoin as a legal tender. This policy marks a fundamental shift in global monetary policy and could serve as a catalyst for economic growth and governance reforms in the Northern Triangle. President Bukele’s new policy is expected to become official within weeks.

El Salvador is one of the three Northern Triangle countries (along with Honduras and Guatemala) that have been the source of a growing share of the mass migration to the United States over the past decade. The Council on Foreign Relations estimates “more than two million people are estimated to have left El Salvador, Guatemala, and Honduras since 2014, many fleeing poverty, violence, and other hardships.”

The United States has committed significant resources to addressing the root causes of the “push” factors. The Congressional Research Service reports that the United States has spent $3.6 billion on foreign aid to try to address these factors and stem the mass migration. Nevertheless, millions of people continue to experience food insecurity and other problems. The COVID-19 pandemic is exacerbating the problem of poverty in the region, according to the World Bank.

What recognizing bitcoin as legal tender may do for El Salvador and neighboring countries

But the decision to recognize bitcoin as legal tender could have far reaching implications for El Salvardor, its neighboring countries, and the ongoing migration from Central America to the United States.

In the short run, El Salvador President Bukele’s decision to recognize bitcoin is aimed to capitalize on the “pull” factor of economic opportunity in the United States--specifically, the billions in remittances his citizens send home from the United States after entering the country. Bukele argues that using bitcoin will significantly reduce the financial transaction cost of remittances and result in a swift infusion of capital into his country.

According to the Central American Bank for Economic Integration (CABEI), the regional development bank which is helping El Salvador with the transition to recognizing bitcoin as legal tender, millions of people in the region depend on remittances from the United States. The Northern Triangle countries ``have the most to gain if the adoption of bitcoin lowered the cost of sending remittances,” says Dante Mossi, CABEI’s executive president. In other words, if El Salvador’s transition goes well, Honduras and Guatemala will likely face growing pressure to also recognize bitcoin.

At first glance, improving the efficiency of remittance transfers would seem to only increase the “pull” factor of economic opportunity in the United States. But the potential secondary effects of El Salvador’s transition to a bitcoin-enabled economy could lead to positive economic and governance changes across the Northern Triangle region which, over time, could change the “push” and “pull” factors..

For an in-depth discussion of the potential groundbreaking impact of El Salvador’s bitcoin plan, check out FREOPP President Avik Roy’s insightful Forbes article from back in June. As Avik explained, establishing bitcoin as a parallel currency with the dollar will free El Salvadorians from the inflationary shocks of US monetary policy, which have increased during the pandemic. It will also pave the way for a more inclusive financial system since every person with a phone will soon be able to access a banking system, thanks in part to technological innovators who are eagerly working to facilitate El Salvador’s monetary transition.

Governance, security, and broader economic reforms are also needed

To be clear, additional reforms are needed to address the “push” factors in the Northern Triangle region. El Salvador currently faces significant governance challenges. Freedom House reports that the country’s elections are free but “widespread corruption undermines democracy and the rule of law, and lack of physical security remains a grave problem.” In July, the White House issued a strategy for addressing the root causes of Central American migration, which describes what needs to change to achieve a “democratic, prosperous, and safe” region.

If President Bukele is committed to transforming his nation into the global crypto capital (which would likely include attracting crypto companies and investors to immigrate), he and the legislature will need to implement governance reforms to improve domestic security and public confidence in its institutions. But the revolutionary move to recognize bitcoin suggests that significant reforms may be possible. If successful, such positive changes could spur similar progress in neighboring countries.

“Push” and “pull” factors will remain, but the bitcoin policy signals positive change

So long as the United States offers the hope of a better life, would-be migrants will have a strong incentive to come to our borders, particularly if they have good reason to believe they’ll be allowed to stay once they reach America.

But the promising economic reforms underway in El Salvador could be the start of real changes that begin to address some of the key “push” and “pull” factors causing the ongoing migration and crisis at the Southern border. That should be welcome news to everyone concerned about the humanitarian crisis in the Northern Triangle and the integrity of the US immigration system.

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