El Salvador's Bitcoin Experiment Costly,Failing

Given the unpopularity and slender use of bitcoin as a currency in El Salvador, you’d think that President Nayib Bukele’s decision to spend another $15 million of the nation’s treasury buying more bitcoins on Monday (May 9) — right as the crypto market began to panic as a stablecoin collapsed — might have some impact on his popularity. Certainly, it has attracted its fair share of bad press.

But it’s important to remember that it’s happening in a country where spiking gang violence is provoking a heavy-handed response by the government, which tends to distract people.

And it’s noteworthy that Bukele’s popularity rating has remained in the 75% to 85% range since 2019, making him one of the world’s most popular leaders.

All of that could be why there doesn’t seem to be as much opposition as apathy from the populace. Once it was instituted and the initial stream of frustration surrounding the touchy Chivo digital wallet had passed, most opponents either got their $30 for creating a bitcoin account, or not, and then let it go.

And it’s difficult to connect bitcoin payment with the national economy unravelling unless you’re really into bond yields and the International Monetary Fund’s loan criteria.

That said, the country already has an economic crisis — estimates of the poverty rate range from 22% to 30% — and the bitcoin-as-currency initiative is worsening it; the policy is driving El Salvador’s credit rating through the floor and the interest needed to sell bonds through the ceiling.

That impact hasn’t really hit the streets yet — certainly not as much as it will in the event of a default on El Salvador’s sovereign debt.

Dip and Snip

Local publication El Salvador.com this week put his losses total bitcoin losses at $38 million.

That was Monday (May 9), the same day Bukele announced on Twitter that he “bought the dip,” snapping up another 500 BTC at less than $31,000.

Last week, Moody’s downgraded El Salvador’s debt rating again. And Bukele again postponed the $1 billion bitcoin bond sale that he’s claimed will be a way to bypass the traditional market — leading to widespread speculation in financial markets that it’s actually dead.

That market is growing more and more concerned about a default, as making bitcoin an official legal tender has driven the IMF to put a hold on the $1.3 billion loan the country needs to make an $800 million payment due in early 2023.

Moody’s cut the country’s bond rating again last week, with the El Salvador Sovereign Bond Price Index (which was set to 100 on Jan. 1, 2019, six months before Bukele took office) collapsing to its current 42.7, from about 90 when he first made bitcoin an official currency.

None of this prevented Bukele from tweeting out architects’ models of both an expansive new airport project and the Bitcoin City he plans to start building with the delayed bitcoin bond — and tweeting “Bitcoin City is coming along beautifully” nonetheless.

El Salvador.com turned to an architectural site to describe the model as an “ambitious circular-shaped development [that] envisions spaces for cryptocurrency-linked technology companies, residential areas, an airport and a seaport.”

Starting Young

Meanwhile, the Financial Times noted that a recent report described the most common type of Chivo wallet user as a “young, high school-educated man with access to the internet and the formal financial system.”

This portrait, the article said, undermined “Bukele’s claims the tech would boost financial inclusion.”

On the other hand, it does fit the demographic targeted by “My First Bitcoin,” a nonprofit offering 10-week crypto education courses, starting with 44 high school students in San Marcos, El Salvador.

The course starts with basic financial knowledge and an introduction to the existing financial system, including topics like what money is, inflation and how cryptocurrencies impact that.

Then it moves on to a second section about bitcoin and blockchain, before addressing “Bitcoin for the future in El Salvador,” which doesn’t really sound too impartial.

The program is currently a pilot, but it will be rolled out across the country if it’s successful.



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