El Salvador had become the first country in the world to turn bitcoin into legal currency in order to speed up its economy, but unfortunately, the country’s circumstances did not improve. International credit rating agency, Fitch, has reduced El Salvador’s credit rating this year. Now, El Salvador’s government wants to take a loan of 8000 crore rupees to improve the economic condition. The IMF, for the same, has asked El Salvador to do away with the legal tender status for bitcoin.
Earlier too, the country had tried to change its currency in order to improve economic conditions. El Salvador, a central American country with a population of 65 lakhs, had, in 2001, stopped using its own currency, colon, and had switched to US Dollars. And in 2021, bitcoin was declared to be legal tender. The ‘Chivo Wallet’ app was introduced to ease transactions, and to download the app, a bonus of around 30 USD or 2400 rupees was also given. Transaction fees was not taken as well.
John Hawkins, Senior Lecturer, School of Politics, Economics and Society, University of Canberra, says that people did not show trust in bitcoin despite the government’s pressure and incentives. While President Nayib Bukele had thought that this would be a revolutionary step. He had said that this would increase foreign investment in the country and jobs would augment.
Bukele was of the opinion that, because the world has 50 lakh millionaires and only 21 lakh bitcoins, if each millionaire planned to buy even 1 bitcoin each, its prices will skyrocket. He believed that even if 1% of the investments into bitcoins came into El Salvador, the country’s GDP would go up by 25%.
John Hawkins mentions that it is obvious that the President was unable to differentiate between GDP and investment. Neither did poverty end in the country, nor did unemployment. Violence and crime could not be reduced as well. Protests against Bukele were organized too. The country got inundated into a debt of 16000 crore rupees, while the government had spent around 800 crore rupees to buy bitcoins, and their price now has reduced to 400 crore rupees. Common people who had invested in bitcoins have faced losses as well.
As a result, the number of people leaving the country in search of jobs is increasing. A large portion of El Salvador’s economy comes from support from outside. Hence, the IMF is anxious about the economy of El Salvador collapsing.
It was Nayib Bukele’s dream to build a bitcoin city in the country, wherein no tax of any form would have to be paid. It was to be funded with a government bond of 8000 crore rupees or 1 billion USD. Half of the fun money was to be used to buy bitcoins, and the other half was to be utilized in building the city.