Table of Contents
- 1 “A burden on the public budget”
- 2 The population remains skeptical
- 3 Poverty is growing
- 4 * How has El Salvador’s Bitcoin experiment impacted the country’s relationship with the International Monetary Fund, given the IMF’s warnings about the risks associated with using Bitcoin as national currency? [[1](https://www.pwc.com/gx/en/financial-services/pdf/el-salvadors-law-a-meaningful-test-for-bitcoin.pdf)]
El Salvador was the first country in the world to allow Bitcoin as an official means of payment. Cryptocurrencies have been booming since Donald Trump was elected US President. What does this mean for the Central American country?
“I told you so” – “I told you so,” tweeted Salvadoran President Nayib Bukele triumphantly. He has been investing public funds in Bitcoin since 2021. Thanks to the recent surge in prices, the value of Bitcoin holdings in El Salvador increased by more than $100 million in a week. Future US President Donald Trump, who once had a critical stance on cryptocurrencies, made a U-turn in his election campaign and promised that he wanted to make the US the crypto hub of the world.
This had an immediate impact on the prices, especially on the “lead currency” of the crypto world, Bitcoin. Rafael Lemus, an economist at the UCA University in San Salvador, still assesses this cautiously. “Someone who has invested private or public funds potentially has a profit if they bought below the current market price and the value of the Bitcoin currency increases,” Lemus told US broadcaster CNN. “But as long as he doesn’t make the sale, it remains just a potential profit.”
“A burden on the public budget”
President Bukele has not yet sold any Bitcoin, so there have been neither losses nor profits, says Salvadoran economist Tatiana Marroquín. “But it is also public money that has not been invested in other things. If we do a cost-benefit calculation, it is simply a burden on the public budget,” she criticizes. “So if the president has now invested $100 million in Bitcoin, it wasn’t available, so we had to pay high interest on other bonds to pay salaries, for example.”
In other words, Marroquín continued: “In order for us to invest in Bitcoin, we have to borrow more for other expenses. El Salvador has no money left, we don’t have it. We can’t lose a dollar.”
The population remains skeptical
And there is a lack of transparency. The only way to understand the investments of the authoritarian head of state is through his Twitter posts. The Salvadoran president has invested around $250 million in public money to promote the use of Bitcoin. Among other things, for the development of the Bitcoin app Chivo Wallet, for vouchers worth $30 for every citizen as an incentive for use, and for numerous ATMs that have been set up everywhere.
An absolute loss, says economist Marroquin, because the cryptocurrency is not being used. Despite the government’s promotion of cryptocurrency in El Salvador, only 7.5 percent reported using Bitcoin for transactions in October, and only three percent used it in everyday life, according to Marroquín.
Poverty is growing
However, since El Salvador became the first country to accept cryptocurrency as an official means of payment at the end of 2021, sales in the tourism industry have increased by around 30 percent. Bitcoin enthusiasts are increasingly coming to the small Central American country to see how it can work. Some people in El Salvador regret not investing at a time when Bitcoin prices were plummeting. Some people would then be wealthier now.
However, it remains questionable whether the state’s Bitcoin profits would really benefit the people of El Salvador. In the Central American country, around 48 percent of the population lives below the poverty line – almost half of the approximately 6.5 million inhabitants live in precarious conditions. Bukele has not presented a sustainable poverty reduction plan for his second term in office either.
According to economic researcher Marroquín, poverty has even continued to rise. “This is what figures from CEPAL, the World Bank, say. Since the pandemic, El Salvador has not been able to recover. A potential profit from Bitcoin will not help the people of El Salvador.” And El Salvador’s Bitcoin experiment has not yet sparked a wave of imitators.
* How has El Salvador’s Bitcoin experiment impacted the country’s relationship with the International Monetary Fund, given the IMF’s warnings about the risks associated with using Bitcoin as national currency? [[1](https://www.pwc.com/gx/en/financial-services/pdf/el-salvadors-law-a-meaningful-test-for-bitcoin.pdf)]
## El Salvador’s Bitcoin Experiment: Discussion Points
This article talks about El Salvador’s adoption of Bitcoin as legal tender. Let’s delve into the key aspects and explore different viewpoints through open-ended questions.
**Section 1: Public Perception and Usage**
* The article states that the Salvadoran population remains skeptical about Bitcoin. What are the potential reasons behind this skepticism?
* Despite government incentives, Bitcoin adoption remains low. What factors might be hindering its widespread use in everyday transactions?
* How can the government encourage greater public trust and understanding of Bitcoin?
**Section 2: Transparency and Economic Impact**
* The article highlights a lack of transparency regarding the government’s Bitcoin investments. How important is transparency in
building public confidence in such initiatives?
* What are the potential economic benefits and risks associated with El Salvador’s Bitcoin experiment?
* Do you think El Salvador’s efforts to promote Bitcoin tourism will be sustainable in the long term?
**Section 3: Poverty and Bitcoin Profits**
* While Bitcoin is meant to attract investment, the article mentions that poverty is still rising in El Salvador. How can the potential profits from Bitcoin be leveraged to address this pressing issue effectively?
* Some argue that Bitcoin’s volatility makes it unsuitable for a developing country. Do you agree or disagree with this statement, and why?
* What alternative measures could the government implement to reduce poverty and improve living standards for Salvadorans?
**Section 4: Global Implications**
* El Salvador was the first country to adopt Bitcoin as legal tender. Has this spurred any imitators? Why or why not?
* Do you think El Salvador’s experiment will ultimately be seen as a success or failure? What factors will determine its outcome?
* What are the potential implications of El Salvador’s Bitcoin experiment for other countries considering similar moves?
Remember, these questions are designed to spark thoughtful discussion and encourage diverse perspectives. There are no easy answers, and it’s important to explore the complexities of this issue from various angles.
