After six months of its implementation, the statistics reflect little acceptance by Salvadorans towards the use of the most famous cryptocurrency, although experts point out that Bitcoin is just the beginning of a disruptive and “dangerous” economic adventure.
A volatile idea. Nayib Bukele, the president of El Salvador, poses sitting in the Presidency of that Central American country with Changpeng Zhao, executive director of the cryptocurrency exchange Binance. This is not a meeting between heads of state, although the photo may seem so.
Bukele continues his political-financial agenda to position El Salvador as the pioneer country in the world of cryptocurrencies. Among the benefits, he has promised, is to include thousands of Salvadorans who still do not have access to traditional banking in digitalization, as well as receiving remittances from abroad without intermediaries or commissions, attracting foreign investment and tourism.
“President Nayib Bukele opens the possibility of new investments in El Salvador with the CEO and founder of Binance,” the presidential house said without saying much. “We need businessmen of the stature of him (Zhao) to support the issue of subscription to the volcano bonds,” added Milena Mayorga, Salvadoran ambassador to the United States.
According to Bukele himself, 65% of the Salvadoran population downloaded the Chivo Wallet, the digital wallet with which the country began to promote Bitcoin as legal tender, driven by a bonus of 30 dollars in Bitcoin and transferable to dollars if the user wants it.
But after half a year of the implementation of the cryptocurrency, various statistics show the drop in enthusiasm internally. A survey by the Chamber of Commerce and Industry of El Salvador, Camarasal, revealed that last November, 22% of businesses received payments in Bitcoin, but the figure fell to 14% in February. 92% of businesses said that Bitcoin is indifferent to their economic activity.
While the Central Bank of El Salvador assured that of the remittances that the country receives, less than 2% are made in Bitcoin. In February, El Salvador received 572 million dollars in family remittances, but only 9.4 million of the figure was made in bitcoin.
The truth is that the adoption of Bitcoin has been handled in complete secrecy and haste by the Government. For the economist Ricardo Castaneda, from the Central American Institute of Fiscal Studies, ICEFI, there are three theories of the adoption of cryptocurrency.
“One hypothesis as to why adopt Bitcoin as legal tender is because, although the population has not benefited from this measure, there are people who have. Let’s imagine who developed the electronic wallet or who has been closely involved in the sale of ATMs automatic,” says Castaneda.
According to him, 225.3 million dollars have been allocated for the Bitcoin project, a significant amount for El Salvador. “To size it, it represents twice the budget of the only public university and represents a fifth of the budget of the Ministry of Health,” says the economist.
Castaneda affirms that the second hypothesis is related to the evasion of possible sanctions by the United States linked to the sending of remittances, which in 2021 exceeded 7,500 million dollars.
The third hypothesis raised by the economist is related to the communication of the Bukele Government. “Placing it as a disruptive reference that confronts the traditional financial system, which is capable of applying these important measures and hiding all the actions of institutional weakening typical of an authoritarian regime. In other words, one more marketing and face-lifting strategy,” Castaneda told France 24.
Paused volcano bonus
Alejandro Zelaya, Minister of Finance of El Salvador, recently assured that the Government is “ready” to issue Bitcoin bonds for 1,000 million dollars through an energy company.
“In terms of the issuance of Bitcoin bonds, we are ready to carry it out, we are waiting for the right moment” and “waiting for the approval of President Nayib Bukele,” Zelaya commented.
The launch of the 1,000 million dollar bond was scheduled between March 15 and 20, but the war between Russia and Ukraine that caused greater volatility in the cryptocurrency led the authorities to change the date.
“In May or June the market variants are a little different. At the latest, in September. After September, if you go to the international market, it is difficult (to obtain capital),” Zelaya promised.
The ICEFI economist assures that the Salvadoran government needs money to finance itself, but that it avoids placing the bonds on international markets because “the risk profile has increased exponentially.”
“What we can already verify is that having opted for Bitcoin as legal tender, far from opening doors of financing for you, they have been closing for you,” Castaneda assured.
Bukele promised that the issuance of the bonds would serve to finance the construction of the tax-free Bitcoin City, located near the border with Honduras and dedicated to mining with geothermal energy obtained from a volcano, as well as to buy more bitcoins.
“Establishing a Bitcoin city where there will also be tax incentives could cause these territories to be considered tax havens. It would also have a negative effect on tax collection because if there is a sector that does not pay taxes, someone else will have to do it, and that someone else is the population,” added the economist.
The promotion of Bitcoin in that country could be just the beginning of something bigger according to analysts, meanwhile the Central American country will have to face organizations such as the International Monetary Fund and the World Bank, which condition financing with the exit of Bitcoin as a currency. in legal course, something in which Bukele is not willing to give in.
So far the Bitcoin fever has increased tourism in El Salvador. Between November and December there was a 30% increase in visits, most correlated to the use of Bitcoin, according to the Ministry of Tourism of that country.
But the economic risks are extensive, says Castaneda. “The Salvadoran government is playing with fire. It’s like going to a virtual casino and betting, only you’re not betting your money, but rather the welfare of the citizenry,” she concluded.
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