This week, cryptocurrencies continue to fall with billions of dollars wiped off the value tokens such as Bitcoin. Investors around the world are affected by this crash, including El Salvador’s government. Central American nation El Salvador has invested millions in Bitcoin and made it legal tender nine month ago. This encourages people to use Bitcoin for daily transactions.
You can buy anything you want in El Salvador, including trinkets, tacos, petrol, and even houses with Bitcoin. It is amazing to buy cryptocurrency with street sellers or major chains.
This shows just how far Bitcoin has advanced since its inception on the internet back in 2008.
President Nayib Bukele has made the cryptocurrency legal tender. This means that it should now be accepted by all businesses along with El Salvador’s other currency, US dollars.
The latest cryptocurrency crash has raised more questions about the policy, particularly the use of almost $100m of public money to buy Bitcoin. Each purchase was celebrated by the president via a tweet.
Although the country’s 2,300 bitcoins now have a value of half that which the government paid, the finance minister has dismissed criticism by saying that there is “extremely little fiscal risk”.
El Zonte is a small fishing and surfing town located on the south coast. This is where El Salvador’s Bitcoin movement began. In 2019, an anonymous donor donated the first large donation of Bitcoin to a group comprising cryptocurrency enthusiasts.
Although no one admits to knowing the identity of the other, the agreement was that the town could keep digital coins provided they weren’t converted to dollars.
It was the idea of creating the first ever circular Bitcoin economy. People can receive payments in Bitcoin, a peer to peer internet cash system, and live off it.
This is a revolutionary idea. It is possible to buy Bitcoin online in the rest of the world, but it is not available for use on the high streets.
El Zonte has received approximately $350,000 so far from an anonymous donor, which is a substantial amount for the beautiful, but shabby town now known as Bitcoin Beach.
Katerina Contreras is one of the first beneficiaries.
She was offered a course in lifeguarding during the pandemic two years ago. The organizers paid for their transport and food in Bitcoin.
She says, “Then we worked as lifeguards for six months and were paid our wages with Bitcoin.”
According to some businesses, they’ve seen a 30% increase in trade due to Bitcoin Tourists. These tourists are attracted by the novelty of using their digital coins for holiday.
However, Bitcoin adoption remains patchy.
My travels have led me to conclude the opposite: the farther you get from Bitcoin Beach the less likely it is that you can buy items in digital currency.
Bitcoin Beach had just over half of the businesses that I encountered accepting Bitcoin. But, if you drive north to San Salvador, it’s closer to a quarter.
According to the government, it does not intend to forcibly accept Bitcoin from businesses. It has so far offered incentives.
Cash is still the king in Salvadorean society. More than half of Salvadoreans do not have a bank account. President Bukele, however, has invested $200m of public money in a subventioned Bitcoin wallet app called Chivo.
The app is free to download and users can sign up for $30 in Bitcoin. This may be why the app has been downloaded over four million times in a country with 6.5 million inhabitants.
Many people use the app to transact in dollars and not Bitcoin. This is a common way to send money back home to family members, such as those who work overseas. There are no transfer fees or commissions.
There are also signs that people are less using Chivo after the initial interest surge.
A second incentive to use it was created at the close of February with the opening the nation’s most advanced animal hospital.
There are often long lines, and people and their pets will shelter under gazebos to wait in line for their appointments. All animal care, including complex surgery, costs just 25 cents. This is provided that the Chivo app and Bitcoin are used to pay for it.
The staff claim that the centre is funded with “the profits from Bitcoin”, but officials of the government have not responded to questions about how these profits were obtained.
The International Monetary Fund (IMF), has been asking El Salvador to reverse its decision making Bitcoin legal tender. Local economists, Tatiana Marroquin, are becoming increasingly concerned.
She claims that the government does not have sufficient money to assist vulnerable people and should therefore avoid taking any risks with public funds being poured into cryptocurrency.
She also stated that there is a lack in transparency.
“We don’t know when or with how much money they bought bitcoins.”
However, Morena Valdez (Minister of Tourism) insists that Salvadoreans still have faith in President Bukele despite Bitcoin’s declining value.
“We are confident that every president’s decision is made at the right time. She says that people have a lot trust in the president’s decisions and how the economy is doing.”
El Salvador’s decision was reported to have prompted other countries to consider it, but the Central African Republic is the only one who has. Faustin Archange Touadera was the country’s president and announced the move via Twitter. He called Bitcoin “universal currency”.
El Salvador wants to go even further.
President Bukele announced plans to build a new city called Bitcoin City at the foot of a volcano. This will generate geothermal energy and provide power for a huge Bitcoin mine.
He hopes to raise $1bn by selling Volcano Bonds worth $1bn, but these were supposed to go on sale in March but have not yet been released.
Officials claim they are confident that they can raise the funds and pay the $800 million foreign debt bill.
The cryptocurrency crash is putting pressure on the government, as it continues to place large bets on Bitcoin.
The documentary El Salvador’s Big Bitcoin Gamble will air this weekend on BBC World News and News Channel.
