Started with “Bitcoin Beach”
The recent cryptocurrency crash has raised more questions about El Salvador’s government’s bitcoin policies, especially the government’s use of nearly $100 million in public funds to buy bitcoin. Today, the value of the 2,300 bitcoins purchased by the country has fallen to half of what it was at the time of the purchase, but the finance minister has dismissed the criticism, claiming that “the financial risk is minimal.”
El Salvador’s “bitcoin movement” started in Elsonte, a surfing and fishing town in the south of the country. An anonymous donor started offering bitcoin to local cryptocurrency enthusiasts in 2019, and has since made several donations. No one has admitted to knowing who he is, and the town holds the digital currencies on the premise that they cannot be exchanged for dollars. The idea is to create the world’s first circular bitcoin economy, where people can pay in bitcoin and make a living.
This is a radical idea. Elsewhere in the world, bitcoin can be used for online shopping, but except for a few hipsterscoffeeOutside of a museum or a one-off project, it’s not yet possible for people to use it on the street. To date, Elsont has received about $350,000 worth of bitcoin from that donor, no small sum of money for this dilapidated but beautiful town. Today, it’s called “Bitcoin Beach.”
Application is still uneven
Katerina was one of the first beneficiaries of this Bitcoin wave. Two years ago, she took a lifeguard training course. Organizers use bitcoin to pay for transportation and meals for trainees. “Then we were lifeguards for six months and got paid in bitcoin,” she said. Some merchants in Elsont said their turnover was up 30 percent, as some tourists were attracted by the novelty of spending with bitcoin, fueled by the video site’s cryptocurrency channel.
However, the adoption of Bitcoin in El Salvador remains uneven. The further you are from “Bitcoin Beach,” the less likely you are to be able to shop with the digital currency. At “Bitcoin Beach,” roughly half the merchants accept bitcoin, but after an 80-minute drive north to San Salvador, El Salvador’s capital, the percentage is only about a quarter.
El Salvador’s government has said it has no plans to force businesses to accept bitcoin and has so far limited it to offering incentives. Although cash is still very important in a country where more than half of El Salvadorans are unbanked, President Bukele has injected $200 million in public funds into the subsidized bitcoin wallet app “Chivo.” Anyone who downloads the app gets $30 worth of bitcoin as a registration fee, which may explain why the app was downloaded 4 million times in a country with a population of over 6.5 million. But many use “Chivo” for dollar rather than bitcoin transactions, such as sending money to relatives at home from people working in foreign countries. There are signs that people are now using the app less after an initial surge of interest.
President wants to build ‘Bitcoin City’
The International Monetary Fund has been urging El Salvador to reverse its decision to legalize bitcoin, arguing it is too volatile. Local economists such as Tatiana Maloquin are also increasingly concerned. Maloquin said El Salvador’s government doesn’t have enough money to help vulnerable groups, so it shouldn’t risk putting public money into cryptocurrencies. She also sees a lack of transparency in the practice. “We don’t know exactly when or with what money they bought bitcoin.” However, El Salvador’s tourism minister, Morena Valdez, insisted that despite the falling value of bitcoin, Salvadorans have confidence in the president.
Now, El Salvador wants to go further. President Bukele has announced a plan to build a new city at the foot of a volcano, “Bitcoin City.” He hopes to raise money by selling a $1 billion “volcano bond.” Officials said they were confident they could raise funds and pay off a looming $800 million foreign debt. But as this administration continues to gamble on bitcoin, the fall in the cryptocurrency has put pressure on them. (Author Joe Teddy, translated by Ding Ding)
