2021 was “a good year, but over the past five months, bitcoin has only fallen. However, we are trying to keep using it,” comments Maria Aguirre, a 52-year-old trader from El Zonte, a seaside resort. where cryptocurrency has been enthusiastically accepted. In fact, the shops of this famous surf spot, 60 km northwest of the capital, were using Bitcoin long before President Nayib Bukele decided that El Salvador would be the first country in the world to make it legal tender on September 7, 2021. . .
In the first four months, the bitcoin device was downloaded to mobile phones 4 million times for a population of 6.6 million in El Salvador. President Bukele’s idea was to facilitate remittances from about 3 million emigrants, mostly in the United States, to their relatives back home by saving bank fees. A strategic issue, as these transfers account for more than a quarter of El Salvador’s GDP.
The adoption of bitcoin caused a strong wave of discontent on the part of the population. ©AFP
Alas, according to the Central Bank of El Salvador, “less than 2%” of remittances from emigrants went through cryptocurrency, says former Central Bank President Carlos Acevedo.
“For a while, yes, I used bitcoin. But judging by the way things are going, I don’t trust it anymore and even deleted the application,” admits Carmen Mejia, a 22-year-old student who returned exclusively to the dollar, the country’s legal currency in for twenty years.
Cost has halved since inception
In September 2021, bitcoin was worth about $45,000, and three months later it was worth $68,000. In euphoria, the President of El Salvador announced that he would build a public veterinary hospital with the winnings. He then floated the idea of issuing a billion dollar cryptocurrency loan to build Bitcoin City.
But the dizzying fall of bitcoin, which is currently below the $20,000 mark, has delayed these grand projects.
According to financial rating agency Moody’s, Mr. Bukele’s government “spent about $375 million to roll out bitcoin, including about $106 million from the Treasury to buy bitcoin, resulting in an incalculable loss” of roughly $57 million.
President Bukele is set to bounce back by taking advantage of the downturn: he bought 80 bitcoins for El Salvador at $19,000, bringing the country’s basket to 2,381 bitcoins purchased over the past twelve months. ©AFP
In El Zonte, Maria still believes this and refers to the advice of the beach resort “experts”: “when bitcoin goes down, you shouldn’t touch it (change in dollars) or you’ll lose everything.” .
President Bukele, meanwhile, is set to bounce back by taking advantage of the downturn: he bought 80 bitcoins for El Salvador at a price of $19,000, bringing the country’s basket to 2,381 bitcoins purchased over the past twelve months. In June, he preached “patience” and recommended “stop looking at the curve” of the bitcoin-dollar rate.
Acceptance is not always well received, especially by the IMF
For the former president of the Central Bank, the presidential bet on bitcoin has “failed”, at least for now. But “this is not a failure yet, because (the market) can recover”, taking bitcoin and the country out of the “crypto winter”.
In addition to having a “psychological effect on people,” the Bitcoin crash “complicated” El Salvador’s negotiations with the IMF for a $1.3 billion loan, Mr. Acevedo further notes. Faced with the risk of default on a debt service that exceeds 80% of GDP, President Bukele announced in July a plan to buy back bonds maturing in 2023 and 2025 so that the country does not run out of liquidity.
Country risk has certainly improved from 35% to 25%, but “it is inconceivable that El Salvador could return to traditional borrowing markets until country risk falls to at least 5%,” Mr. Acevedo said.