Despite millions of dollars spent, the cryptocurrency experiment in El Salvador has not been a success. Residents did not share the president’s enthusiasm. “Despite free bitcoins and gas discounts for those who downloaded and used the cryptocurrency app, downloads have plateaued and its use in everyday life is not widespread,” commented the National Bureau of Economic Research (NBER). In 2021, El Salvador became the first country in the world to recognize bitcoin as an official means of payment.
Meanwhile, young, dynamic and controversial President Nayib Bukele expressed his satisfaction as bitcoin reserves, on which he spent over $120 million from his country’s public treasury, saw an increase in value after previously falling by almost 50%. “Issue a correction and an apology,” he wrote to his critics on the X platform.
El Salvador’s experiment: the result cannot be positive
The BBC, citing a website tracking the value of bitcoins bought by Bukele, reported in early December that the 2,764 coins the president had purchased were now worth more than at the time of purchase. “El Salvador’s bitcoin investments have turned positive,” Bukele announced. According to economists, however, it is too early to celebrate the success of a high-risk cryptocurrency investment, the price of which may fluctuate by 50%. up or down in a few months. Critics also point out that spending from the state budget on the promotion of bitcoins has not brought satisfactory results. “The government has spent a lot of money on the development of the Chivo Wallet application, on installing ATMs that mostly do not work, on $30 bonuses for all citizens over 18 years of age, on propaganda and international events. If you add up all these expenses, the result it cannot be positive. It is negative, very negative,” said the director of the Institute of Sciences at the University of Francisco Gavidia in San Salvador. Oscar Picardo, quoted by the BBC.
“Bitcoin City” construction plan
In 2021, El Salvador passed a law that made it the first country in the world to recognize bitcoin as an official means of payment. This was part of Bukele’s radical reforms. The president assured that this would support economic growth and provide access to loans, savings, investments and safe transactions. The leader also announced a plan to build a “Bitcoin City” at the foot of a volcano, from which geothermal energy would be drawn to power computers that would “mine” more bitcoins. When justifying the controversial bitcoin recognition plan in 2021, Bukele argued that issues related to remittances from abroad contributed to this decision. This was intended to save Salvadorans living abroad the $400 million they spent each year on commissions for these remittances. A quarter of Salvadorans live in USA and sends money back home. In 2020 alone, the value of remittances from abroad amounted to almost USD 6 billion, which corresponded to 23%. GDP El Salvador. This is one of the highest rates in the world.
Free bitcoins and gas discounts
It was also emphasized that the introduction of bitcoin and the Chivo wallet would help overcome barriers related to the low percentage of people using banks. In 2021, approximately 70 percent Salvadorans did not have bank accounts, and the Chivo app was intended to help them access financial services. When the Chivo wallet was launched in September 2021, the authorities encouraged residents to install it, offering, among other things, bonuses equivalent to $30 in Bitcoin. The application was installed by half of the population, but over 60 percent of those who decided to do so, did not make any transaction there other than spending their free bitcoins – emphasized the American organization National Bureau of Economic Research (NBER) in the summer of 2022. “Despite free bitcoins and gas discounts for those who download and use the cryptocurrency app, downloads have plateaued and its use in everyday life is not widespread,” NBER commented, analyzing “El Salvador’s experiment in using bitcoin as legal tender.” Although the law requires all companies to accept fees in bitcoin, in fact only 20 percent do so. of them. Only 5 percent all payments are made in bitcoins via Chivo Wallet. Most households prefer to keep their money in cash, and 88 percent enterprises convert bitcoins into dollars – emphasized the American organization. Critics also point to the lack of transparency of Bukele’s bitcoin investments. According to the BBC, no public body keeps track of the reserves he has purchased. “There is no official information except what President Bukele posts on the X platform,” said Frank Muci from the London School of Economics. Bukele himself has repeatedly criticized institutions such as the International Monetary Fund (IMF), which warned him that the adoption of bitcoin in El Salvador could make it difficult for him to obtain loans. The president admitted that the bitcoin rate will remain unstable, but he does not plan to sell the reserve.
Main photo source: Rodrigo Sura/EFE/PAP/EPA