Tech
Cash-strapped, El Salvador doubles down on Bitcoin dream
BERLIN, El Salvador, Feb 2 (Reuters) – James and Nicki Malcolm have moved from New Zealand to El Salvador to fulfill the bitcoin dream sold by President Nayib Bukele in 2021, when he made the Central American nation the first in the world to accept the cryptocurrency as legal tender.
Months later, Bukele outlined his plans for Bitcoin City, a tax-free cryptocurrency haven powered by a volcano’s geothermal energy, to a crowd of enthusiasts at a presentation at a beach club that also featured an avatar of himself in a spaceship.
As the popular Bukele prepares to win a second term this Sunday, work has yet to begin on Bitcoin City. But undaunted and still inspired, the Malcoms, along with 15 other foreigners and a Salvadoran couple, have convinced more than 100 businesses to accept bitcoin in the coffee-producing mountain town of Berlin in eastern El Salvador.
“Adoption is key for us, that’s what we think is important and how bitcoin will win,” said Nicki, a former mortgage advisor who is part of the effort to turn Berlin into its own cryptocurrency mecca. “Bukele has planted the flag in the ground.”
Bukele is pushing ahead with his plan to turn the country into a cryptocurrency haven, jeopardizing the country’s chances of receiving a quick cash injection from the International Monetary Fund (IMF), despite credit agencies warning that state coffers are running dangerously low.
On his social media feed, Bukele boasts about Bitcoin’s spikes and extols infrastructure plans in disco-music-filled videos. But this hides a stark reality: El Salvador’s economy is largely stagnant and has the slowest economic growth in Central America. Extreme poverty has doubled since 2019, and nearly half the population is food insecure.
“It’s unusual for someone to use bitcoin,” said Kevin Valle, 24, a Salvadoran produce vendor at Berlin’s main market. “All I can say is that the price of my tomatoes and onions has doubled, and people are worried about low employment and wages.”
In 2022, the country’s public debt reached a 30-year high of $25 billion.
After the failure of initial talks with the IMF for a billion-dollar deal early in his first term, Bukele’s government returned to the negotiating table and even hired the IMF’s former Western Hemisphere director last April.
The IMF has recommended that El Salvador remove bitcoin’s legal tender status during negotiations on financial support.
The Fund did not respond to a request for comment.
But the 42-year-old troublemaker’s resolve has been strengthened by Bitcoin’s recent rally. The cryptocurrency’s comeback has pushed El Salvador’s alleged investments (no one really knows the size of his holdings) into the black.
Nayibtracker.com, an unofficial website that tracks Bukele’s El Salvadoran bitcoin wallet based on social media, values it at $121.6 million on an initial investment of $119.8 million, a 1.5% yield.
After a Recent announcement by the U.S. Securities and Exchange Commission (SEC) to allow U.S.-listed exchange-traded funds (ETFs) that track bitcoin, Bukele’s vice president he told Reuters The government will further tighten its cryptocurrency law in its second term.
According to some economists, the country’s adoption of cryptocurrency alongside the dollar is largely not responsible for the overall state of the economy, but rather low foreign direct investment and excessive government spending.
But amid questions about the state’s spending habits and a clear liquidity problem, critics point out that bitcoin has yet to deliver significant benefits.
Economists such as Tatiana Marroquin have questioned Bukele’s decision to risk an unknown amount of taxpayer money that could have been used elsewhere in a risky investment.
Vice President Felix Ulloa told Reuters that initial investor skepticism was “changing.”
Through careful processing multimedia machine keeping dissent in check, Bukele projects the image of a more modern and economically astute El Salvador. But it is his massive crackdown on violent criminal gangs, at the expense of civil liberties, that has propelled him to dizzying heights of popularity with the Salvadorans.
Bukele claims to work for Salvadorans and once responded to concerns about democracy by changing his bio on X to “The coolest dictator in the world.”
EMPTY WALLETS
Today, most Salvadorans are unaware of bitcoin. They worry about the cryptocurrency’s volatility in a cash-based economy where many live hand-to-mouth.
About 88% of Salvadorans did not use it in 2023, according to a survey by the University of Central America’s public opinion institute. Only 1% of remittances were sent in bitcoin.
About two dozen people interviewed by Reuters said they were not interested in understanding cryptocurrency, but were increasingly concerned about job losses and rising housing and food costs.
Along with security victories, Bukele’s bitcoin investment has rebranded El Salvador, helping boost tourism.
In Berlin, business owners say they make a handful of bitcoin transactions a day, mostly through tourists.
At Bitcoin Beach, ground zero for cryptocurrency in El Salvador, tourism has skyrocketed. Many local businesses are happy with the influx, but many have complained about skyrocketing prices, especially for land, as foreigners accumulate property on the beach.
While they handle a limited number of bitcoin transactions, they complain about problems with Chivo, the digital wallet hastily created by the government in 2021 to allow Salvadorans to store and send bitcoin.
“It was not executed well. Things that were supposed to happen just didn’t happen,” said Philip Ong, a Singaporean bitcoin entrepreneur who said he invested $1 million to open an office in San Salvador.
He told Reuters he “firmly supports” Bukele’s bitcoin vision. But he left El Salvador last year, largely, he said, because there was “no momentum.”
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Reporting by Sarah Kinosian and Nelson Renteria; additional reporting by Rodrigo Campos and Diego Ore; editing by Christian Plumb and Claudia Parsons
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