Nayib Bukele’s failed Bitcoin experiment in El Salvador

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Well, that didn’t hap­pen. Instead, Bukele’s ambi­tious bet ran head-on into the great cryp­to crash of 2022.

Bit­coin, a high-stakes gam­ble for Bukele, seems to have failed. Approx­i­mate­ly 70 per­cent of Sal­vado­rans don’t have a bank account and work in the infor­mal econ­o­my. Mean­while, remit­tances rep­re­sent an out­sized role in the country’s econ­o­my: At rough­ly $6 bil­lion in 2021, they were more than 25 per­cent of the GDP, rank­ing among the high­est shares in the world. Rough­ly one-fifth of El Salvador’s pop­u­la­tion lives in the Unit­ed States.

But 10 months after El Sal­vador offi­cial­ly adopt­ed Bit­coin as legal ten­der, the cryp­tocur­ren­cy has lost about 60 per­cent of its val­ue. Bit­coin is a form of cryp­tocur­ren­cy or dig­i­tal cur­ren­cy that is open­ly trad­ed with­out the inter­ven­tion of a cen­tral bank, and allows peo­ple to make pay­ments to each oth­er via an online system.

As part of the launch, Bukele’s admin­is­tra­tion bud­get­ed $200 mil­lion to cre­ate a gov­ern­ment-spon­sored cryp­to app called El Chi­vo Wal­let, which includ­ed an ini­tial bonus of $30 as an incen­tive for users to down­load it. So far, experts have esti­mat­ed that the coun­try has spent $425 mil­lion in its Bit­coin project.

Bukele’s move to make his gov­ern­ment an ear­ly adopter of Bit­coin earned him the praise of major cryp­to techies and the crit­i­cism of the inter­na­tion­al finan­cial com­mu­ni­ty. Most of the data sur­round­ing Bit­coin spend­ing and usage has come from Bukele him­self via Twit­ter. In Jan­u­ary, the pres­i­dent said there were 4 mil­lion El Chi­vo Wal­let users.

But three econ­o­mists recent­ly con­duct­ed a nation­al sur­vey to gauge cryp­to usage and its effects in El Sal­vador. Their find­ings were pub­lished in April by the US Nation­al Bureau of Eco­nom­ic Research. Despite many efforts from the Sal­vado­ran gov­ern­ment to make Bit­coin hap­pen (for exam­ple, it estab­lished a vet­eri­nary pub­lic hos­pi­tal where all ser­vices cost 25 cents as long as pay­ment is made with a cryp­to wal­let,) its usage has been under­whelm­ing, the econ­o­mists found.

A vet­eri­nar­i­an treat­ed a dog dur­ing the first day of work of ChivoPets, a new vet­eri­nary pub­lic hos­pi­tal in Antiguo Cus­cat­lan, El Sal­vador, in Feb­ru­ary. MARVIN RECINOS/AFP via Get­ty Images

“[U]sage of bit­coin for every­day trans­ac­tions is low and is con­cen­trat­ed among the banked, edu­cat­ed, young, and male pop­u­la­tion,” researchers wrote. Ini­tial­ly, over half of Sal­vado­ran house­holds down­loaded El Chi­vo Wal­let, but vir­tu­al­ly no one has down­loaded it this year. They found that almost 20 per­cent of peo­ple who down­loaded the app have not used their $30 bonus. Near­ly 61 per­cent of peo­ple have not used the app after spend­ing their bonus.

Per­haps that’s why many observers of El Sal­vador pol­i­tics and local pun­dits have called Bukele’s Bit­coin bet a gim­mick “to white­wash his government’s grow­ing author­i­tar­i­an­ism on the world stage,” as Sal­vado­ran jour­nal­ist Nel­son Rau­da Zablah put it in a New York Times op-ed last week. Rau­da Zablah called Bukele’s exper­i­ment a mirage. A Lon­don School of Eco­nom­ics’ pol­i­cy fel­low told CNBC recent­ly: El Salvador’s eco­nom­ic pol­i­cy “is essen­tial­ly mag­i­cal think­ing.”

“Maybe $425 mil­lion for the US or even Cal­i­for­nia is noth­ing. But in El Sal­vador, that’s rough­ly 6 per­cent of its nation­al bud­get,” said Ricar­do Valen­cia, assis­tant pro­fes­sor of com­mu­ni­ca­tions in Cal­i­for­nia State Uni­ver­si­ty, Fuller­ton, in an inter­view. “We’re see­ing the effects of the Bit­coin gam­ble in the lack of invest­ment in infra­struc­ture there.”

Accord­ing to Valen­cia, cryp­to in El Sal­vador will end up look­ing more like hell than a mirage. “It comes with author­i­tar­i­an­ism, dis­sent, crack­down,” he said, refer­ring to Bukele’s strong­man ways and hard-line poli­cies to deal with increas­ing gang violence.

Nonethe­less, Bukele is dou­bling down. He insists that “Bit­coin is the future” and remains well liked by Sal­vado­rans; an opin­ion poll put his approval rate at 85 per­cent, the high­est of any Latin Amer­i­can leader.

Mean­while in Africa, the Cen­tral African Repub­lic adopt­ed Bit­coin as a legal ten­der in May. It is one of the world’s poor­est nations, rank­ing sec­ond to last in the Unit­ed Nations Human Devel­op­ment Index. Its gov­ern­ment had bet­ter pay atten­tion to the ear­ly lessons of Bukele’s Bit­coin experiment.


Marcela Gar­cía is a Globe colum­nist. She can be reached at marcela.garcia@globe.com. Fol­low her on Twit­ter @marcela_elisa and on Insta­gram @marcela_elisa.



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