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As we reported in “El Salvador Becomes World ‘s First National Bitcoin Experiment” (22 Feb 2022), the tiny Central American nation became the world’s first country to honor Bitcoin as legal tender as part of president Nayib Bukele’s plan to leverage the digital coin to enable his country’s economy to flourish.
In 2021, Bukele’s administration allotted about 15 percent of the national budget to build an infrastructure for acquiring, spending, and receiving Bitcoin and processing the digital transactions through financial institutions.
Bukele then offered each El Salvadoran about $30 worth of Bitcoin—about 1 percent of the country’s annual average wage—to everyone who downloaded a digital Bitcoin wallet.
Then reality arrived.
Although Bukele says 60 percent of adults in his country downloaded the wallet and claimed the stipend, only 10 percent continued using Bitcoin after they spent their $30, according to a study by U.S. economists.
Almost no one has downloaded the wallet this year, the study found.
The government’s Bitcoin holdings have lost 60 percent of their value, El Salvadorans have stopped using it, and the country is running out of money as Bukele remains unable to raise more money from Bitcoin investors to bankroll his vision.
Only 14 percent of merchants report having had Bitcoin transactions and a scant 3 percent say they see any business value in it, according to a poll taken by El Salvador’s chamber of commerce.
Salvadorans in the U.S. have ignored Bukele’s call to use Bitcoin to send remittances home; the digital currency has made up less than 2 percent of remittances from the U.S. this year through May, the country’s central bank said.
Also, the notion that El Salvador’s celebration of Bitcoin would bring digital currency businesses to the country has flopped.
Only 48 related companies have registered in the nation since Bitcoin became a national currency, which accounts for less than 2 percent of the number of businesses that opened there in 2019, the WSJ said.
“The impact has been null,” Leonor Selva, executive director of the country’s National Association for Private Enterprise, said in a WSJ interview.
The economy is careening toward a choice between slashing public services or defaulting on foreign debt, which could halt imports of staples and even cause a bank run, the WSJ warned.
“Bukele has shown that he cares more about public image than about sound economic management,” Frank Muci, a London School of Economics policy analyst who studies emerging markets, told the WSJ.
“Eventually, the chickens will come home to roost, at a very high cost to the country,” he added.
That time has not come yet: Bukele remains popular among the public, largely because of his administration’s subsidized fuel prices and crackdown on gangs.