It was a rough start for Bitcoin in El Salvador, the first country in the world to give the status of legal tender to the cryptocurrency. Likewise for its “millennial” president, Nayib Bukele, who saw a drop in his popularity for the first time, as well as the largest street demonstration against him.
Beside the fact that on Tuesday Bitcoin lost more than 10% of its value in a couple of hours (maybe even connected to its launch in the small Central American country), most Salvadorans, at least two-thirds of whom are trapped in an informal economy of survival, oppose the legal obligation to accept payments in the digital currency even for small and medium-sized businesses; moreover, few are knowledgeable about how Bitcoin works, except for the fact that it is synonymous with pure speculation.
There were also some initial technical malfunctions: the state electronic wallet called Chivo (“cool”), which provides a gift of $30 on registration, worked only on the Huawei network. Bukele’s response to the generalized chaos was to double the government’s initial stake on its platform to 400 bitcoins (which immediately led to losing $1 million), a measure that was supposed to keep the prices of goods and services stable against any volatility of the exchange currency (the process behind this was left unclear). Later, he admitted in an embarrassed tweet that there had been some technical problems and that “as with all new things, it will take time to understand how to use it; but El Salvador has every right to move forward towards the first world.”
The government has assured that the use of cryptocurrency will save $400 million in transaction fees—particularly in the transfer of the $6 billion that Salvadoran emigrants are sending each year to their families back home (nearly a quarter of revenues at the national level). The government platform will absorb these expenses, at least initially. But it will not be able to extend this benefit for long, given El Salvador’s alarming debt exposure, further aggravated by its ongoing gamble.
It should not be overlooked that the launch of Bitcoin as legal tender has resulted in the suspension of Bukele’s negotiations with the IMF. And the reaction on the part of international finance can be described as perplexity, at the very least, except for the more speculative part, which is observing the events with (hardly well-intentioned) curiosity.
But then, why would Bukele, the youngest president of the Americas, venture into such a project? He comes from a family of successful merchants who emigrated from Palestine at the beginning of the last century. The answer of the most suspicious-minded observers is that this must be an operation for the benefit of his family and power clan. Some avow that he has his hands deep in the money laundering business. Others (of a less suspicious mind) speak instead of a ruler grappling with the financial situation of the country, in such a poor state that he is trying to bring the underground into legality and get them to pay some taxes.
But in El Salvador (as in the rest of Central America), it has been known since the times when it was a Spanish colony that those who don’t pay taxes are the voracious business oligarchy. The latter, for the moment, remain silent observers.
It’s difficult to untangle the complexities involved, especially on a topic that is still too difficult and unexplored, such as the advent of “anonymous” cryptocurrencies on the market. The fact remains that Bukele is in effect the absolute master of El Salvador: with the support of the young (and desperate) generation that elected him president en masse in 2019; with the absolute obedience of the army and police; and with a 2/3 majority in Parliament for his Nuevas Ideas (“New Ideas”) party, thanks to which (in an institutional coup) he has replaced the heads of the judiciary.
Ten days ago, “his” new magistrates found a way around the rule that would have prevented him from running for office twice consecutively. As a result, Nayib could be re-elected in 2024, without having convened a new Constituent Assembly.
One thing he certainly does not lack is courage. But at the current rate, how long can he go on?