El Salvador's September 2021 adoption of bitcoin as legal currency has mainly served to benefit its president, Nayib Bukele. The queen of cryptocurrencies, still little used in the country, has worsened the national deficit while increasing Mr. Bukele's political capital.
El Salvador has justified adopting this currency by the economic opportunities it offers, such as attracting foreign tourists who want to spend their bitcoin or allowing those who work abroad to save the banking charges levied on the amounts they send to their families, which alone account for 22% of the gross domestic product. In September 2021, as an incentive, residents were given the equivalent of 30 dollars in bitcoin to spend from a digital wallet, and some were even trained how to use it.
However, a report published in April by the US-based National Bureau of Economic Research shows that only one in five companies accept bitcoin as a transaction currency and just 5% of businesses use it regularly. Educated young men who already have a bank account are the most likely to use the new currency. The most recalcitrant say they don't own a smartphone with internet access, don't know how to use the technology or trust cash payments over virtual currency. In other words, bitcoin excludes older citizens and the most disadvantaged.
The plan for a 'Bitcoin City'
Bitcoin is not fixing the country's finances either. According to calculations from Bloomberg, the value of the cryptocurrency purchased by the government since September has depreciated by 40 million euros, with its price falling by 40% since March. The country, which has seen its sovereign credit rating downgraded by Fitch Ratings, is dangerously close to default, with a debt that has risen sharply since the start of the Covid-19 pandemic. President Bukele's bitcoin policy is also not helping negotiations with the International Monetary Fund, which has asked him to abandon it, believing that the large fluctuations in the price of the cryptocurrency threaten the country's financial stability and put people at risk of losing their savings in the event of a hack. The adoption of the currency, which is very popular with organized crime because of the anonymity it offers, also complicates the fight against money laundering.
But bitcoin is, above all, a political project. It crystallizes the aspirations of an emerging middle class for whom technology is synonymous with modernity and progress. In the case of El Salvador, it also symbolizes emancipation from the dollar, which replaced the local currency, the colon, 20 years ago. By making El Salvador the home of cryptocurrency, the president is returning a bit of lost honor to his country. He even took the dream a step further by presenting a model for "Bitcoin City," made of golden skyscrapers, straight avenues, giant coins placed at intersections and an enormous bitcoin logo erected in the heart of the city. Its designers want to build it on the coastline near a volcano in order to supply geothermal energy for cryptocurrency-mining servers, which are based on energy-intensive blockchain technology.
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