On June 7, 2021, the President of El Salvador, Nayib Bukele, announced to the world, through a pre-recorded video at a Bitcoin conference in Miami, that he was introducing Bitcoin as legal tender in El Salvador, a country the size of Sergipe with a GDP of a meager US$ 27 billion. A week after the announcement, the law that would regulate the bitcoinization of the Salvadoran economy was in Congress and, without further discussion or debate on the implications of the introduction of Bitcoin as a legal tender, the law had been passed with the promise of going into effect. three months later. Thus, on September 7, Brazil’s independence day, El Salvador made history and became the first country to adopt Bitcoin as a legal tender. From that moment on, all the spotlights were on the country and every step of the millennial president was followed by the world with great attention. For all intents and purposes, the pioneering spirit of El Salvador turned the country into a laboratory for the world and, if everything went wrong for the “Central American Sergipe”, the risk of contagion would be minimal and the experiment would pass into oblivion without leaving any further traces.
a lot wrong
However, contrary to President Bukele’s expectations, as he stated in an interview with Peter McCormack, “what could go wrong?”, much has gone wrong. Eight months after the entry into force of the Bitcoin Law, the project, which is already showing clear signs of fatigue, faces a lack of credibility, minimal adherence, serious technical issues, lack of transparency and the worst, has triggered the loss of confidence in the capacity country to pay its public debt. Eight months were enough to show the world the consequences of adopting Bitcoin as a legal tender. Today, the world knows what not to do, but it still doesn’t know the true benefits of adopting Bitcoin (or any other cryptocurrency), nor what would be the best way, if any, to take this step. In El Salvador, prices remain in dollars and practically 100% of transactions continue to be carried out in US currency. Trust in the chivo wallet (which in my view was one of the biggest mistakes the government could have made) simply ended. In fact, it never made it to the top. The most important of the promises, sending remittances from abroad at zero cost, in the last month barely reached 1.5% of the total. In the international community of bitcoiners, despite the initial excitement, I think it’s become clear that Bukele’s project has proven contrary to the Bitcoin philosophy. Bitcoin was devised by Nakamoto to remove the mediation of the “trusted third party”, i.e. the banks, but Bukele took the reverse route, took the banks out and put the government as an intermediary, which undermined the credibility of the project. Transparency also shone through his absence and, in the face of internal opposition to the project, Bukele resorted to repression.
on your knees
The implementation of the Bitcoin Law, the authoritarian escalation and the absence of an economic policy that goes beyond improvisation has brought El Salvador to its knees before the public debt creditors. For the risk classifiers, El Salvador is quickly approaching default and, at this moment, Bukele is trying to get money in the most creative ways possible, one of them being the potential nationalization of the pension system, which would help him not to default on the debt, but in the long run, it would only sink El Salvador for good and leave millions of Salvadorans without a pension. The promise of the bono volcano launch has gone from being a bold and innovative promise to yet another promise not kept by Bukele. Meanwhile, Bukele continues announcing grandiose projects, such as building an airport in eastern El Salvador and building a rail system that would link El Salvador from east to west. These two projects would be added to so many other promises, such as, for example, the launch of a satellite; the construction of a ferry boat that would link El Salvador with Costa Rica; the creation of the world’s largest children’s symphony orchestra; the construction of Bitcoin City; Bitcoin mining using geothermal energy (while El Salvador still imports part of the electricity it consumes); the construction of a subway in the city of São Salvador and a huge et cetera of broken promises. Without an economic policy other than the Bitcoin Law, after having closed almost all doors with international partners, among them the main one being the United States, with a public debt approaching 100% of GDP, with an authoritarian escalation on the verge of dictatorship, the Bitcoin chapter in El Salvador could be coming to an end. The credibility in the Bitcoin project and in President Bukele before the international community has been exhausted, now it remains to wait what will happen in the coming months with the “Central American Sergipe”. But, amazingly, Salvadorans love their president who still enjoys high approval ratings, by far the highest in the world. Thus, El Salvador could go down in history as one of the first countries to sink after implementing Bitcoin as a legal tender under the leadership of one of the most popular presidents in the world.
About the author
Edwin Lima is a Salvadoran resident in Amsterdam, where he works as a consultant in the field of Business Intelligence and Artificial Intelligence. He holds a master’s degree in Artificial Intelligence from the University of Amsterdam (UvA) and a Bachelor’s degree in Computer Science from the Federal University of Paraíba (UFPB) in João Pessoa, where he lived for seven years.