The bitcoin experiment is being a bad business for El Salvador, both for the state coffers, which in four months they would have lost 22 million dollars and, in addition, they are damaged by the lower financial credibility derived from the adoption of the cryptocurrency, such as for citizens who have followed President Nayib Bukele’s advice to buy units of that currency or accept it in their daily transactions.
The value of bitcoin is at its lowest point since the law that imposed it as legal tender for all purposes, together with the country’s currency, which is the dollar, came into force in El Salvador at the beginning of September last year.
American. Precisely, the security and stability offered by the dollar is something especially appreciated by Salvadorans, which further explains the reluctance of many to put their family finances and savings at risk by managing bitcoins.
On September 7, the date on which the law establishing the new framework began to be applied, a bitcoin was worth around 46,000 dollars; at the end of October it reached 60,000 dollars, but since then it has had a prolonged fall, reaching this last weekend the $35,000.
As the number of bitcoins acquired by citizens is unknown, or the part of the savings that they may have in that cryptocurrency – in addition, the Government does not report on the total volume of bitcoins that move in the official Chivo Wallet platform created for transactions in daily life – it is impossible to determine how salvadoran households have been affected due to the devaluation experienced. The luck of each one will depend on the price on the dates of their buying and selling movements, but as a sustained investment it has proven to be a failure so far.
Bukele defends that the bet will bring long-term profits and insists that this year a bitcoin can reach 100,000 dollars. large-scale purchases of the government can maintain those expectations, but Bukele has embarked on the operation to citizens with less capacity to wait. The Ministry of Finance ensures that purchase operations with public funds are carried out by a team of officials; In any case, it is Bukele who seems to have the greatest role in the decisions that are made in this regard, surrounded by an opacity that offers a clear margin for corruption.
drop in value
The government is certainly not transparent about how it handles its Bitcoin investments. The only one who gives an account is Bukele himself, in tweets announcing currency purchases with great fanfare. After some media reported in December the losses that these investments are causing to the public coffers, the Minister of Finance, Alejandro Zelaya, assured that some of the bitcoins purchased had been converted into dollars. That does not fit with the long-term bet that the Government is making, according to Bukele.
As there is no data on possible sales, the calculations that can be made are based on the total volume of bitcoins acquired, always in accordance with the president’s tweets. the first purchase, of 400 bitcoins, was made on September 6, the day before the law regulating its use came into force: at a price of 46,811 dollars per unit, the Government spent 18.7 million dollars. Since then he has bought six more times: on September 7 he acquired 150 and as many on the 19th of that same month; on October 27, he made the largest purchase, 420 bitcoins, just as the price had skyrocketed to over $60,000; on November 26 he bought 100, and another 150 on December 3; finally on December 22, in the last operation, he acquired 21. In total, to date and according to Bukele’s announcements, the Government has bought 1,391 bitcoins, disbursing a total of 71.3 million dollars (at an average of 51,288 dollars per unit).
If the volume of bitcoins in the possession of the Salvadoran government remains the same, its total value had fallen on January 22 to 49.3 million dollars, which represents a loss of 22 million dollars compared to the money invested in its purchase. .
IMF and bonds
On the other hand, the adoption of Bitcoin has damaged the financial prospects of the State. The International Monetary Fund (IMF) did not go ahead with a line of credit that it negotiated with the Government so that the Salvadoran economy could better face the crisis caused by the pandemic. The IMF argued that the adoption of the cryptocurrency introduced a lack of transparency in the national financial system. The international institution I had already warned about his objections to Bitcoin before the Government put into force the regulations that authorized its legal tender.
In addition, as recently reported by the Bloomberg agency, the uncertainty introduced into El Salvador’s accounts led to its bonds being the ones with the lowest performance in the world in 2021. The yield of 800 million in bonds denominated in dollars maturing in January 2023 had risen to 34% on January 11, from the level a year ago, which was less than 9%. This supposes prospects for the public coffers of an increase in the cost of the debt that the country can issue in the new situation.