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El Salvador marks 1st year of Bitcoin use as confidence wanes

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A year ago, El Salvador began accepting Bitcoin as legal tender following a controversial and much criticized decision by President Nayib Bukele
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A year ago, El Salvador began accepting Bitcoin as legal tender following a controversial and much criticized decision by President Nayib Bukele.

All seemed rosy for the first few months as citizens enthusiastically embraced the new opportunity, but Bitcoin’s value has plummeted since and some experts say the move has been a failure.

Maria Aguirre, 52, a shopkeeper in the El Zonte seaside resort that has been a major center for Bitcoin use, says things were going well last year as Bitcoin’s value rose from $52,660 at opening on September 7, 2021, to briefly over $68,000 a couple of months later.

“But over the last five months it’s been only falling,” said Aguirre, who continues to accept Bitcoin transactions.

Bitcoin has dipped under $20,000 for most of this September.

In El Zonte, around 60 kilometers southwest of capital San Salvador, Bitcoin was already being used before Bukele’s move, which was designed to encourage a population where only 35 percent of people owned an account at a financial institution in 2021, according to the World Bank.

El Salvador became the first country to accept Bitcoin as legal tender, alongside the US dollar that has been the official currency for two decades.

The government even created the Chivo electronic wallet and granted each user the equivalent of $30.

By January, the application had been downloaded four million times, according to Bukele — an impressive amount in a country of 6.6 million, although with a diaspora of three million living mostly in the United States.

Bukele’s idea was to ensure that remittances, which make up 28 percent of El Salvador’s GDP, be sent by Chivo meaning less money lost in commission to exchange agencies.

However, former central bank president Carlos Acevedo says the body’s records show that “less than two percent of remittances are arriving through digital wallets, which means that this hasn’t been a benefit either.”

University student Carmen Majia, 22, said she used Bitcoin in the beginning “but given how things are going, now I don’t trust it and I uninstalled the application.”

– Volatility –

When Bukele’s plan was launched, Aguirre had already been using Bitcoin for eight months in the Pacific seaside resort that is popular with surfers.

After Bitcoin shot up in value between September and November 2021, Bukele announced a plan to build Bitcoin City — a tax haven for cryptocurrencies and blockchain technology on the Gulf of Fonseca that would be powered by geothermal energy from the Conchagua volcano.

To build it, Bukele was going to issue $1 billion in Bitcoin bonds but those plans were delayed by the volatile cryptocurrency market that saw some less robust currencies crash and Bitcoin take a huge hit.

According to the credit rating company Moody’s, Bukele’s plan has cost El Salvador $375 million.

Taking advantage of the drop in value, Bukele bought 80 Bitcoins at $19,000 each in July, taking El Salvador’s total holdings to 2,381 units of the cryptocurrency, all bought over the last year.

In June he told compatriots to “stop looking at the graph” insisting that Bitcoin is a secure investment that will bounce back up.

“Patience is the key,” he said.

– Little enthusiasm –

But Acevedo insists that the use of Bitcoin “really has not worked” and that “so far it has really been a failed bet.”

But not a total failure “because it could recover and get out of this crypto winter.”

Acevedo says Bitcoin has not produced Bukele’s stated aim of “financial inclusion” and its fall in value has “psychologically influenced people who do not view it with enthusiasm.”

The adoption of Bitcoin has also complicated El Salvador’s attempts to secure a $1.3 billion loan from the International Monetary Fund, which had urged against the move.

Faced with a warning that the country could default over its public debt that has surpassed 80 percent of GDP, Bukele announced in June a plan to buy back bonds due to expire in 2023 and 2025.

He insists the country has the cash to do so.

That reduced the country’s risk from 35 percent to 25 percent but Acevedo says El Salvador will not be able to return to the debt markets until that figure comes down to “at least five percent.”

In El Zonte, Cheetara Hasbún, a hotel employee, still thinks Bitcoin is a “good payment” method and just “needs more time, as was given to the dollar.”

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Crypto here to stay, must be regulated: Hong Kong treasury chief

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Hong Kong treasury chief Christopher Hui speaks during an interview with AFP in Hong Kong
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Hong Kong has decided to let retail investors trade cryptocurrency under its new regulatory regime because “virtual assets are going to stay”, the city’s minister overseeing financial services said Tuesday.

Cryptocurrencies have been banned in mainland China since 2021, but the former British colony, which has a separate financial system and regulators, has announced plans to become a major digital asset hub.

From June 1, authorities will begin accepting applications for licences from cryptocurrency exchanges that will allow them to sell major tokens including bitcoin and ether to individual traders.

“Despite the potential risks involved, (virtual assets) also carries with it fundamental value,” Christopher Hui, Hong Kong’s secretary for financial services and the treasury, told AFP in an interview.

“So for these positive elements to be harnessed, these activities have to be allowed in a regulated way.”

Regulators around the world are examining cryptocurrencies with renewed urgency following the collapse of trading platform FTX last year and other high-profile failures in the sector. 

Hong Kong was initially hesitant to allow crypto exchanges to take on retail clients, but Hui acknowledged that there was “considerable interest” in trading.

Asked whether Beijing backed Hong Kong’s plans to open up crypto trading, Hui said the finance hub charts its path by following the emerging global consensus. 

“Different jurisdictions will adopt the right approach to their own market, and Hong Kong is no exception,” he said. 

“We are an open market… So while different jurisdictions have different laws and requirements, I think what we should do is based on what we are good at.” 

The government’s pivot toward crypto and fintech coincides with Hong Kong’s recent reopening following three years of tough Covid policies that isolated it internationally and drove talent away. 

Hong Kong’s international business reputation also took a hit as Beijing cracked down on political freedoms after mass democracy protests in 2019.

The promise of fresh crypto exchange regulations has attracted more than 80 enquiries with the city’s investment promotion agency, the treasury chief told AFP. 

“One thing that has been very obvious is that Hong Kong is back to usual,” he said. “We are back to business.”

– ‘Right guardrails’ –

During a public consultation that ended in March, some crypto firms bemoaned stringent proposals that made compliance potentially costly.

One concession made by regulators was to lower the insurance coverage requirement down to 50 percent for virtual assets held by clients in “cold storage” — a more secure way of storing crypto offline.

“For technical reasons, of course cold storage presents lesser risk for hacking,” Hui said, saying the shift was to reflect risks in a proportional way.

Under the new rules, crypto exchanges must assess a client’s risk tolerance and knowledge of cryptocurrencies, and impose risk-exposure limits.

“Investors have to be in the know in terms of what they are going into,” Hui said, adding that education is a priority.

But authorities have yet to specify the exact threshold for crypto knowledge needed for a retail investor to trade — one of several implementation details left up in the air.

Hong Kong’s securities regulators will issue guidelines later, Hui said.

Crypto-related scams are a burgeoning problem in Hong Kong, with the city last year recording more than 2,300 such cases with total losses of HK$1.7 billion ($217 million), according to police.

“We understand the risk, we at the same time put in the right guardrails,” Hui told AFP.

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France opens its first electric car battery factory

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French Finance Minister Bruno Le Maire said Europe must 'flex its muscles' in the industrial sector
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France launched its first factory for electric vehicle batteries on Tuesday, taking a big step in its race to build up a sector dominated by China.

The plant in Billy-Berclau is the first in a clutch of factories that are due to open over the next three years in a northern corridor billed as a “Battery Valley” for the rapidly growing industry.

The “gigafactory” is owned by Automotive Cells Company, a partnership between French energy giant TotalEnergies, Germany’s Mercedes-Benz and US-European automaker Stellantis, which produces a range of brands including Peugeot, Fiat and Chrysler.

French Economy Minister Bruno Le Maire, who attended the opening ceremony, likened the factory to the creation of Airbus, which turned Europe into a powerhouse in the aircraft manufacturing sector.

“The European Union must flex its muscles” in terms of industry as “China will give no quarter”, he said.

German Transport Minister Volker Wissing said the facility, along with two other ACC factories due to open in his country and Italy, will ensure that “Europe remains at the forefront of global progress tomorrow”.

The heads of Mercedes, Stellantis and TotalEnergies also attended the event.

Building up the battery industry is at the heart of President Emmanuel Macron’s “reindustrialisation” plan for France.

The ACC factory is the length of six football pitches. Production is due to begin this summer.

– ‘Battery Valley’ –

Europe is racing to step up its production of batteries and electric vehicles as the European Union has set a 2035 deadline to phase out the sale of new fossil fuel cars.

Around 50 battery factory projects have been announced in the EU in recent years as the bloc scrambles to meet its goal of becoming climate neutral by 2050.

The ACC factory is the first of four due to open in the burgeoning “Battery Valley” in the Hauts-de-France region.

Sino-Japanese group AESC-Envision is building a plant near the city of Douai which will supply French automaker Renault from early 2025.

French startup Verkor is scheduled to begin production at a facility in Dunkirk from mid-2025. 

Taiwan’s ProLogium has also chosen the coastal city for its first overseas factory, with output to start in 2026.

The French government has set a target of producing two million electric vehicles per year by 2030.

The ACC plant is expected to supply 500,000 vehicles per year by then.

– China, US competition –

France hopes to produce enough batteries for its car industry by 2027 and later become an exporter.

But it faces higher energy costs than China or the United States.

China is the world leader in electric car battery production and also dominates the production of the raw materials needed to make them.

Europe also faces stiff competition from the United States, which is heavily subsidising the sector through the Inflation Reduction Act, which includes $370 billion in clean energy incentives.

Out of the seven billion euros ($7.5 billion) invested for the ACC project, 1.2 billion euros came from public funds.

While Battery Valley is expected to recruit more than 20,000 people in the next few years, French unions worry about the electric vehicle industry’s impact on jobs.

Some 100 people staged a protest on Tuesday against the planned closure of a Stellantis site in Douvrin.

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AI poses ‘extinction’ risk, say experts

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ChatGPT burst into the spotlight late last year, sparking huge investment but also widespread criticism
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Global leaders should be working to reduce “the risk of extinction” from artificial intelligence technology, a group of industry chiefs and experts warned on Tuesday.

A one-line statement signed by dozens of specialists, including Sam Altman whose firm OpenAI created the ChatGPT bot, said tackling the risks from AI should be “a global priority alongside other societal-scale risks such as pandemics and nuclear war”.

ChatGPT burst into the spotlight late last year, demonstrating an ability to generate essays, poems and conversations from the briefest of prompts.

The program’s wild success sparked a gold rush with billions of dollars of investment into the field, but critics and insiders have raised the alarm.

Common worries include the possibility that chatbots could flood the web with disinformation, that biased algorithms will churn out racist material, or that AI-powered automation could lay waste to entire industries.

– Superintelligent machines –

The latest statement, housed on the website of US-based non-profit Center for AI Safety, gave no detail of the potential existential threat posed by AI.

The center said the “succinct statement” was meant to open up a discussion on the dangers of the technology. 

Several of the signatories, including Geoffrey Hinton, who created some of the technology underlying AI systems and is known as one of the godfathers of the industry, have made similar warnings in the past.

Their biggest worry has been the rise of so-called artificial general intelligence (AGI) — a loosely defined concept for a moment when machines become capable of performing wide-ranging functions and can develop their own programming.

The fear is that humans would no longer have control over superintelligent machines, which experts have warned could have disastrous consequences for the species and the planet.

Dozens of academics and specialists from companies including Google and Microsoft — both leaders in the AI field — signed the statement.

It comes two months after Tesla boss Elon Musk and hundreds of others issued an open letter calling for a pause in the development of such technology until it could be shown to be safe.

However, Musk’s letter sparked widespread criticism that dire warnings of societal collapse were hugely exaggerated and often reflected the talking points of AI boosters.

US academic Emily Bender, who co-wrote an influential papers criticising AI, said the March letter, signed by hundreds of notable figures, was “dripping with AI hype”.

– ‘Surprisingly non-biased’ –

Bender and other critics have slammed AI firms for refusing to publish the sources of their data or reveal how it is processed — the so-called “black box” problem.

Among the criticism is that the algorithms could be trained on racist, sexist or politically biased material.

Altman, who is currently touring the world in a bid to help shape the global conversation around AI, has hinted several times at the global threat posed by the technology his firm is developing.

“If something goes wrong with AI, no gas mask is going to help you,” he told a small group of journalists in Paris last Friday.

But he defended his firm’s refusal to publish the source data, saying critics really just wanted to know if the models were biased.

“How it does on a racial bias test is what matters there,” he said, adding that the latest model was “surprisingly non-biased”.

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