Status: 03.01.2023 8:18 a.m
Whoever invests in Bitcoin will have lost some money in 2022. Annoying. But what if, like in El Salvador, a government relies on cryptocurrency? Bitcoin has been the national currency there since autumn 2021.
The slope of the Conchagua volcano still lies calm and sunlit. But this volcano is supposed to revolutionize little El Salvador. Bitcoin City is to be built at its foot, a futuristic city in which Bitcoin will be mined using the energy of the volcano. At least that is the vision of President Nayib Bukele.
Many people without their own account
However, that still seems a distant dream. And it began in September 2021: El Salvador was the first country in the world to introduce Bitcoin – alongside the dollar – as an official means of payment. Until now, the small country in Central America has been known for its brutal youth gangs, for poverty, a lack of prospects and for record numbers of emigrants. Now the 40-year-old president is convinced that Bitcoin will create jobs, attract investors, and integrate thousands into the financial system who have previously been excluded.
In fact, a majority in El Salvador don’t have bank accounts because banks simply won’t give them one. Many work without a contract and security. The state-owned Chivo wallet for bitcoin businesses now allows them to send and receive money digitally. Companies that are technically able to do this must also accept Bitcoin by law. Sounds good at first, if there wasn’t a problem: Bitcoin is extremely volatile. And hardly anyone in El Salvador can afford to lose money. But that’s exactly what happened.
“A Big Scam”
El Zonte, a surfing beach near the capital, is actually considered the government’s flagship project because they were the first to use cryptocurrency there. An anonymous bitcoin donation to a local social project provided the impetus. Since then, crypto fans from all over the world have met here more often. But skepticism is palpable among the villagers. She has already downloaded the Chivo wallet, says Dora Guerrero, who runs a small restaurant. But of the $500 they had saved, they suddenly only had $300 left. “A big scam,” she says. If you don’t constantly monitor the exchange rate and quickly exchange your Bitcoins for dollars if necessary, you could lose a lot of money. You hear something similar in the capital San Salvador: “Too insecure”, “We don’t understand the currency” or “I can’t save anything.” Some also have neither smartphones nor data on their cell phones.
In fact, currency turmoil, bitcoin crashes, and criticism from abroad have dampened euphoria in El Salvador. And so the balance for 2022 is pretty devastating: 76 percent of the people in El Salvador say they did not use Bitcoin that year. According to a study by the University of Central America in El Salvador (UCA), 77 percent consider the introduction to be a failure. “According to the latest surveys, eight out of ten companies have never received a transaction in Bitcoin,” says Leonor Selva, President of the Private Business Association in El Salvador. And economist Tatiana Marroquin adds: “You are forcing the population to play a game of victory or defeat with Bitcoin.”
$300 million in taxes for an experiment
Marroquin sits in front of the website of the so-called “Nayibtrackers“. Volunteers document here how much tax money the President has invested in Bitcoin. Because whenever Bukele bought Bitcoins, he tweeted – twelve times so far. The tweets are the only source of information that economists have. So Bukele probably has $ 108 million in Bitcoin invested, plus about $200 million in expenses to program the Chivo app and deploy 200 bitcoin ATMs, plus $30 in starting credit for everyone who downloaded the app.
Marroquin calculates that a good $300 million in tax money is in the Bitcoin experiment. For them, the problem lies primarily in this lack of transparency: “We don’t know why Bukele is buying the volatile currency. We don’t know what to do with possible profits.” Although $ 300 million is only a fraction of the state budget, about 30 percent of the budget of the Ministry of Health. “But these millions could have been sensibly invested in supporting older people and women,” says Marroquin.
President Bukele turns down interview requests, but Tourism Minister Morena Valdez answers questions. After the introduction of Bitcoin, tourism companies had 30 percent more sales, says Valdez. However, despite repeated requests, the data is not made accessible. The minister wipes away the skepticism of the people in the country: “It’s all a learning process. My grandmother didn’t believe in savings accounts either, preferring to have her money in cash.”
El Salvador’s image has not improved
A comparison that economists do not accept because Bitcoin is highly speculative. And he didn’t bring any new companies into the country, says Leonor Selva from the employers’ association. About 50 companies from the crypto milieu have registered, but the majority are not creating jobs for Salvadorans – at least in the short term. “They first bring a representative into the country who they install here for a year or two. And see what business opportunities there are,” says Selva.
And economist Tatiana Marroquin sees even the attempt to change El Salvador’s image as a failure. “Sure, up until now there has been talk of gang violence in connection with El Salvador,” she says, “but now journalists are calling me and saying, ‘Hey, bitcoin has fallen. How bad is your country?'” And bitcoin City? Observers consider it questionable that the project can be financed. If so, it may take years before the beginnings of a city are visible on the Conchagua volcano.