By Arun Kumar Shrivastav
The El Salvador government headed by its colorful president Nayib Bukele adopted bitcoin as the legal tender with effect from 7 September 2021. At the UN General Assembly later that month, Bukele stood at the podium and took a selfie. Turning to the audience he said, “A couple of images on Instagram have a greater impact than any speech in this assembly.”
Bukele came to power in 2019 and was a publicist before turning to politics, first serving as the mayor of Nuevo Cuscatlán (2012-15) and later as the mayor of Capital San Salvador (2015-2018). El Salvador with 6.5 billion people is the fifth poorest country in North America and has one of the worst government debt to GDP at an average of 56.79 percent for 1991 to 2000, and peaking to 90.17 percent in 2020.
But thanks to the 40-year old El Salvador President who once described himself as the “coolest dictator of the world” on his Twitter profile, the Central American country seems to have successfully changed the narrative by scripting a new bitcoin-powered euphoria.
On Saturday (December 4), El Salvador bought 150 bitcoin when it was trading at $48,670, down by about $9,000 in 24 hours. With this latest buying-the-dip, El Salvador has a stash of 1270 bitcoins worth $68 million. Many Central Banks around the globe and IMF, in particular, have criticized Bukele for making bitcoin a legal tender in his country. They argue that bitcoin is highly volatile and it’s not safe to tie a country’s economy to such an unpredictable currency.
But Bukele is not fazed by criticism. Like all bitcoin believers, his trust in digital currency is complete. In his response, Bukele has blamed the Fed Reserve for printing currencies mindlessly and stoking an ever-growing inflation, an argument he has put forth for other central banks as well.
In the last three months, El Salvador has tried to promote the adoption of bitcoin by a string of measures. These include airdropping bitcoin worth $30 to the e-wallet of each citizen. To this end, every citizen has to download the Chivo e-wallet that the country has introduced to facilitate bitcoin transactions.
Global financial regulators find this yet another example of imprudent decision. They think it exposes the citizens to a financial system that is vulnerable to cyber security risks such as hacking. El Salvador citizens are also paying less for filling up the tank of their vehicles if they pay in bitcoin – another measure to promote digital money.
Whether these initiatives have brought any relief to the people is yet not clear. But the popularity rating of Bukele is not down either. And, the El Salvador president is flaunting this to the chagrin of other world leaders, and leading global financial institutions, who have different opinions about bitcoin.
El Salvador was in talks with the IMF for a $1.3 billion loan. But the IMF has been sulking ever since El Salvador made bitcoin a legal tender. Typically, the IMF puts conditions on beneficiary countries to cut down spending on social sectors and increase interest rates for industries. In a recent report, the IMF has said that El Salvador is making impressive progress on the economic front but cautioned the country on its decision to make bitcoin an official legal currency.
But Bukele is all sold for bitcoin! Last month, he inked deals with a few companies in the crypto space that aim to make El Salvador the “World’s Crypto Capital” with a brand new Bitcoin City, put in place regulatory framework for global crypto trade, and launch Bitcoin Bond worth $1 billion, selling $100 apiece.
Who needs IMF money when you have bitcoin! This seems to be Bukele’s message to the IMF.
Well, going by the investor-frenzy that the crypto trade has seen this year, amassing $1 billion in bitcoin for a country that is supporting it whole-heartedly looks an easy thing. For all those who disdain bitcoin mining (validation of transactions) for consuming a lot of energy, El Salvador has announced to mine bitcoin by geothermal energy – volcanic energy. And, it mined bitcoin with volcanic energy in October this year, making the world see how to overcome an oft-repeated criticism of the world’s first digital coin.
El Salvador may not have become the World’s Crypto Capital just yet, but it has become a key pilgrimage for bitcoin lovers. The global tourist footfall has increased notably and people are thronging to the country to see how bitcoin transactions work at the practical level.
Meanwhile, Bukele has announced that half of the money from $1 billion bitcoin bond will be spent in buying more bitcoins, and the profits made by bitcoin adoption would be used to set up schools and a vet care facility for dogs in the country. (IPA Service)