In June 2021 after reading that El Salvador suddenly assigned Bitcoin the status of a cryptocurrency of legal tender, putting with the IMF at risk. I remembered what the Argentine government did in 2001. That is, to de-dollarize its economy in order to resume devaluation autonomy with a local currency and thus be able to stabilize the country’s economy
If a measure like this could be taken in three days, from the President’s announcement to the Parliament’s approval, it is assumed that at any time the Government would be able to revert to the Salvadoran Colon as its official currency.
The countries bound by the dollar are tied hands, they cannot increase the money supply by printing paper, and if they don´t have a sound economic plan with which to combat inflation, unemployment or the high level of external indebtedness, as history has shown, all that remains is devaluation. But it has to be with a clear local currency.
In addition, another aspect that suggests that the measure is interventionist is the creation by the government of the Wallet Chivo, which allows the government to control all transactions and give counterpart in bitcoins in exchange for dollars. This is not very “decentralized” and it also increases its balance in dollars to the detriment of the people.
However, I was reluctant to think that the Bukele Plan in El Salvador was premeditated in this sense because devaluation is already widely seen. According to him, the Plan was to formalize the Bitcoin Blockchain among the population to lower the rates on remittance services, financially integrate the people, and increase the country’s investment by issuing debt in digital currency and creating jobs through the construction of Bitcoin City.
In El Salvador, 70% of the population doesn´t have access to a bank account and one-fifth of the GDP published in 2021 comes from remittances in dollars from Salvadorans who work mostly in the US and send them to their families.
After everything that has happened in recent months like Bitcoin volatility, Ukraine war, inflationary tensions all over the world, impending crisis in Argentina …, I have realized that society (especially Latin American) is aware of the dangers of economies over-indebted to foreign countries, with corrupt governments and chronic hyperinflation for decades. In this type of country, a new currency has become necessary in a decentralised ecosystem, which no one can influence, democratic and with a public DLT accessible to everyone.
Therefore, given the country’s financial situation with a public debt at the end of 2020 of almost 100% of its GDP, Bukele’s recovery plan was good in my opinion but the chosen cryptocurrency was not, due to its high volatility.
According to Bloomberg, El Salvador has 2,301 bitcoins acquired in different batches for a total value of $105 billion of which it has already lost 45%.
The next debt maturities will occur in January 2023 and 2025. The planned 1 billion bitcoin debt issuance is already unfeasible because the credit rating agencies Fitch and Moody’s have downgraded their ratings to the lowest level. If there is no confidence in the country, there is no investment.
Considering that El Salvador has been using the dollar for 20 years and that gives it a competitive edge, perhaps it would have been better to choose a Stablecoin as USD Coin instead of Bitcoin. USD Coin has traded around $1 per currency since it began trading at the end of 2018.
Unfortunately, there seems to be little room for action in that small economy, and depending on the outcome, we may never know what Bukele’s real intention was with this Bitcoin Plan.
What definitely didn’t help is the way the government communicates with the population. A population with little financial knowledge mostly. For example, Article 7 of the Bitcoin Act is worded in such a way that it is interpreted that traders are obliged to accept bitcoins in their sales, which again appears to be an authoritarian measure. On this the population has expressed itself on numerous occasions and Bukele has simply replied by Tweeting that the use of bitcoin is not mandatory. But in the end, what is more valid what is written in the Law or the president’s Tweets?
