Bitcoin, the bet of President Nayib Bukele to boost the Salvadoran economy, celebrates two years as legal tender this Thursday in
El Salvador, although with a very restricted use and without generating confidence in the population.
On September 7, 2021 bitcoin began to circulate legally in the country at the behest of the president. Bukele tried to ensure that remittances from abroad flow at a lower cost, and that Salvadorans, 70 percent of whom were outside the financial system, were enrolled in massive numbers.
But two years later, “the objectives that were pursued (…) have not been achieved, people hardly use it, don’t trust much” in bitcoin, points to the AFP the independent economist Carlos Acevedo.
“The experiment has not worked, he is experiencing a crypto winter,” adds the former president of the Salvadoran Central Reserve Bank.
This is the balance of the two years of bitcoin in El Salvador.
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How has bitcoin fared in El Salvador?
This Central American country became the first nation in the world in September 2021 to have the cryptoactive as legal tender – along with the US dollar.
Bukele was confident that family remittances from abroad, which represent
21% of Salvadoran GDP, would arrive massively in cryptocurrencies, but that did not happen.
People don’t really have confidence in a cryptocurrency whose value changes from one moment to the next.
To channel bitcoin transactions and remittances, the government created the “Chivo Wallet” system, but only 1% of the 4,710 million dollars of money transfers from abroad between relatives arrived in the country through that digital wallet between January and July of this year, according to the Central Reserve Bank.
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“People don’t really have confidence in a cryptocurrency whose value changes from one moment to another, and in the country people prefer to use cold hard cash,” he points out to the AFP the independent economist Julia Martínez, ex-academic of the UCA.
When Bukele introduced bitcoin, the measure did not fall in favor among multilateral organizations and it was questioned by the World Bank and the International Monetary Fund, which warned about the high volatility of the asset.
And it is that since it was established as legal currency, more than 250 million dollars have been invested in this project, which has been the main economic commitment of President Nayib Bukele.
The Bukele Government allocated 150 million dollars for a trust for the conversion of cryptocurrency to dollars, at least 107 million in the purchase of 2,381 bitcoins, in addition to delivering a 30-dollar bonus to those who downloaded the government digital wallet, among others bills.
But the information on the use of these resources was kept secret by state institutions and the only official source is Bukele’s publications on the X social network (formerly Twitter), and the data continues to be reserved.
In this social network, Bukele announced in mid-November 2022 that his government would start buying a bitcoin daily, 295 days have passed since then and the authorities have not confirmed said purchase.
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What does the population of El Salvador think?
Despite Bukele’s high popularity with his “war” against gangs (90% approval), For now, the president has not managed to convince his compatriots of the benefits he attributes to bitcoin.
71% of Salvadorans consider that cryptocurrency “has not helped at all to improve their family economic situation,” according to a survey by the Central American University (UCA) released in May.
In the streets of San Salvador, the rejection of this currency is palpable. “I don’t see how that money works, it’s just propaganda. Where is it?”
the benefit? There is no benefit. It’s a bad investment,” said newspaper vendor Juan Antonio Salgado, 65, in dialogue with the AFP.
“It’s a robbery,” he says, referring to the volatile price of the cryptocurrency.
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The independent economist César Villalona explains to the AFP that bitcoin “does not exist in the local economy”, since in El Salvador “everything” is paid for in dollars: wages, services and purchases in commerce.
But others see possibilities in this cryptocurrency. José Francisco Ayala, a 38-year-old YouTuber, affirms that the use of bitcoin is a matter of “learning” and knowing how to use technology. “We are going forward, we are not going backwards. As we learn, we are going to get into that environment,” he says.
In monetary termsthe economy of El Salvador grew by 10.3% in 2021, according to data from the Central Reserve Bank (BCR), But economists attribute this to the reactivation of the economy after the covid-19 pandemic and not to the adoption of bitcoin.
By 2022, the economy of this country grew 2.6%, a figure lower than the expected 2.8, and it is expected that 2023 will close between 2% and 3% of economic expansion, among the lowest in the region.
In addition, the number of jobs that the adoption of bitcoin would have generated is unknown, or its contribution in foreign and private investment, given that there are at least 97 registered service providers, including recognized exchange houses.
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The truth is that according to the expert Acevedo, “you can’t talk (of) that the government failed” with bitcoin, because “its price can rise from one moment to another and it would be another scenario”.
In September 2021, when it began to be used in El Salvador in parallel to the dollar, the cryptocurrency was around $45,000 and a couple of months later it rose to $68,000.
After that rise, Bukele, a regular on social networks, announced his plan to build “Bitcoin City” with pomp in an act on a beach, a city near the Gulf of Fonseca that would work with the thermal energy of a volcano.
Today, however, bitcoin is trading at just over $25,500.
It has served to publicize an image of modern El Salvador, but in reality it is only propaganda
But other analysts warn that the currency can become a way for the irregular financing of electoral campaigns ahead of the 2024 elections, since El
Salvador will hold general elections and Bukele, despite the indications of unconstitutionality, will seek his immediate re-election for 5 more years.
Bitcoin “is allowed to finance campaigns”, but “it is a tool that can be used to hide the source of financing“, said Eduardo Escobar, director of Acción Ciudadana, who also regretted that, in his opinion, the adoption of this cryptocurrency “has only served (the Government) to increase the degree of opacity in the management of public affairs.”
“It has also served to publicize an image of modern El Salvador, but in reality the issue is only propaganda,” he said.
For now, the future of this currency in El Salvador remains to be seen.
*With AFP and EFE
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