- Almost a year has passed since the president of El Salvador, Nayib Bukele, surprised the world by announcing that he would make Bitcoin legal tender.
- Since then his plan to revolutionize the Salvadoran economy seems to be failing.
- “Bukele has shown that he cares more about public image than good economic management”
Almost a year has passed since the president of El Salvador, Nayib Bukele, surprised the world by announcing that he would make Bitcoin legal tender, with this measure Bitcoin was expected to transform the country’s economy.
Today this gamble on Bitcoin appears to be failing, according to a New York Times report, which emphasizes the distance between the promises of crypto advocates and economic reality. Amid the recent market crash, El Salvador’s Bitcoin holdings have lost roughly 60% of their value.
Among Salvadorans, the use of Bitcoin has fallen drastically and the country has been left without money after Bukele failed to raise new funds from investors in cryptocurrencies. Despite this reality, Bukele’s popularity remains, according to survey reports, more than eight out of 10 Salvadorans continue to support the president, largely because of his strategy against criminal gangs and fuel subsidies, which have achieved cushion the blow of global inflation.
Now, there is talk of Bukele’s failure with the Bitcoin strategy with the objective he had set of bringing ” investments to the country and financial services to the poor”, which exposed, according to critics, his autocratic style of governing. that focuses on his image, likewise, leaves doubts about the financial viability of the president’s plan to modernize the country.
It should be noted that the adoption of Bitcoin in El Salvador began last year when the government allocated the equivalent of 15% of the annual investment budget to bring Bitcoin to the national economy. He also offered him 30 USD, which represents almost 1% of what an average Salvadoran earns in a year, for downloading the Chivo Wallet, which is the government-backed payment application. According to Bukele, 60% of Salvadorans got on the boat with him; however, after the initial phase, which had massive support, the use of the cryptocurrency has fallen.
According to a survey published by the National Bureau of Economic Research and conducted by 3 US economists, it showed that only 10% of Chivo users continued to transact Bitcoin on the app after spending their $30 stipend. Fernando Alvarez, an economist at the University of Chicago and one of the study’s authors, said:
“The government gave this project all the momentum that could be expected, and still it failed”
An independent survey conducted by the Salvadoran chamber of commerce and industry in March showed that only 14% of people have transacted with Bitcoin since its introduction in September and only 3% said they perceive any commercial value in it.
Adding to this effort to boost Bitcoin in the country is the violent bear market that has wiped hundreds of billions of dollars off the value of digital assets since March. Edgardo Villalobos, who coordinates the vendors in a large street market in the center of San Salvador, said according to the aforementioned media, that his $30 stipend for downloading the Chivo application is now worth $10. Adding, “people are afraid of losing their money”.
Critics also claim that Bitcoin did not attract the huge number of cryptocurrency entrepreneurs to the country as expected; Only 48 Bitcoin-focused startups have been registered in El Salvador since the cryptocurrency’s introduction, according to the country’s central bank, accounting for less than two percent of all businesses that opened in 2019.
However, despite the drastic drop in the price of Bitcoin, Bukele does not lose enthusiasm for the currency and trusts in all the good that it will achieve. Via Twitter posts on June 30, following the latest purchase from him amid an ongoing cryptocurrency selloff, the president wrote, “Bitcoin is the future!” “Thanks for selling cheap.”
So far, the operations that Bukele has carried out have cost the country a loss of some 63 million dollars, according to calculations made last week by the magazine Disruptiva, published by the Francisco Gavidia University of San Salvador.
Bukele last year cut outlays to local governments, increasing financing problems and forcing some mayors to cut public services such as scholarships and water infrastructure. Carlos Acevedo, a Salvadoran economist and former director of the central bank, stated:
“The problem is that with Bitcoin nobody is earning anything… It is an investment that has no social return.”
The fall in the price of Bitcoin has hit the rock that supports Bukele’s “financial experiment”, which is the issuance of the world’s first government bond backed by Bitcoin, with which Bukele would have circumvented traditional financial institutions, such as the International Monetary Fund, which has conditioned the new funds to the country to financial regulation. After announcing a bond of 1,000 million dollars denominated in Bitcoin, the government postponed the project indefinitely at the last minute citing the problems of the war in Ukraine.
According to economists, this leaves the country with few efficient alternatives to making an $800 million payment on its debt due in January, or subsequent payments in later years. This could lead Bukele to make tough decisions such as drastically cutting public spending, which will not bring a positive response.
Finally, Rank Muci, a public policy expert at the London School of Economics who has studied El Salvador’s Bitcoin bond, said:
“Bukele has shown that he cares more about public image than good economic management”
“But in the end the difficulties will remain, with a very high price for the country.”
