SAN SALVADOR, 19 Nov 2022:
Though El Salvador’s government has lost millions of dollars amid the steep decline in the value of bitcoin, ordinary Salvadorans have felt little impact – because hardly anyone in the Central American country shares president Nayib Bukele’s enthusiasm for cryptocurrency, noted economist Ricardo Castaneda.
“Fortunately we are not talking about an economic catastrophe,” he said in a telephone interview from the offices of the independent Central American Institute of Fiscal Studies.
He noted, however, that the government’s cryptocurrency losses, estimated at roughly US$70 million, are equal to the annual budget of El Salvador’s largest public hospital.
“Despite the insistence of the president, of the government, the citizenry was intelligent and did not adopt bitcoin,” Castaneda said. “In that sense, the volatility and the enormous fall doesn’t represent a big impact in people’s family economy.”
Since September 2021, when Bukele proclaimed bitcoin as legal tender in El Salvador, his administration is thought to have spent more than US$100 million to acquire 2,381 bitcoins.
But when asked how many bitcoins the government has bought and at what price, a government spokesman declined to respond.
A recent survey by the Central American University’s Institute of Public Opinion found that only around 24% of Salvadorans have used bitcoin for transactions this year.
And 65% of respondents expressed disagreement with Bukele’s decision to continue using public funds to purchase bitcoins.
“While it’s true that El Salvador was the the first country where bitcoin was adopted (as legal tender), it may also be the country where the largest percentage of the population refuses to use it,” Castaneda said.
“But despite that, the citizenry is the loser because public resources have been used for the implementation of bitcoin,” the economist pointed out.
The bill that supporters of the right-wing president pushed through the Salvadoran congress in June 2021 approved the use of more than US$200 million in public funds to finance the cryptocurrency initiative.
Bukele has also announced plans to build “Bitcoin City” and his government has issued US$1 billion in sovereign bonds backed by cryptocurrency.
Among the winners from the programme, Castaneda lists the companies who sold bitcoin ATMs to the government and the developers of the Chivo digital wallet app, as well as “those who have been using El Salvador as a haven to launder assets via crypto-assets because the institutions have not been strengthened.”
He also decried a lack of transparency.
“I can’t imagine a democratic country where the citizens don’t know what is being done with their taxes and regrettably, in the case of El Salvador that is happening,” the economist said.
Bukele has insisted that El Salvador has lost nothing on its bitcoins because it has not sold any, even as he claims that profits from cryptocurrency dealings financed construction of a veterinary hospital.
“Clearly there is misleading publicity,” Castaneda said.