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El Salvador’s bitcoin experiment fails

Wsick Bitcoin price drops after crash Soar, a cryptocurrency exchange that caused El Salvador’s pro-Bitcoin President Nayib Bukele to reconsider his gamble on the country’s finances? So far, Mr. Bukele, who has made Bitcoin legal tender in September 2021, appears defiant. On Nov. 17, he tweeted that his government would be buying one bitcoin per day after not buying any for nearly six months (see chart). He also brushed aside any criticism of his decision to use public funds to buy it. “Stop drinking the elite’s Kool-Aid and look at the facts,” he wrote two months ago.

Sadly, the truth is dire, at least for El Salvador’s 6.5 million people. The country lost $65 million, or two-thirds, of the $105 million the social media-obsessed leader paid for cryptocurrencies. (This is assuming Mr. Bukele can take his word for it; use his tweets to track the purchases.) Mr. Bukele claims these aren’t real losses because he didn’t sell any coins — a parody of the Bitcoin brethren who shout one bitcoin It is worth one Bitcoin every time the price falls. He also claimed the drop wasn’t a big deal since it accounted for 0.2% gross domestic product. He thinks Bitcoin boosts tourism.

Even so, the government is strapped for cash. The damage from Mr Bukeler’s bitcoin binge has cost the country in other ways as well. Analysts and creditors fear El Salvador will not be able to repay its debt, including about $667 million due in January. To reassure markets that it would avoid a default, the government bought back $565 million in sovereign bonds in September. But that month, ratings agency Fitch downgraded the country’s rating. El Salvador could turn to China to buy its foreign debt if a potential free trade deal is reached.

Salvadorans have yet to discover Bitcoin vulnerabilities. Fewer than a quarter of those surveyed in September had used it to pay. Some of them may be doing it just to use up the $30 in bitcoin the government gives to people who download digital wallets. A full 77% think the government should stop buying it. That makes cryptocurrencies a soft spot for Mr Buckler. The self-proclaimed “world’s coolest dictator” has an 86 percent approval rating, mostly for fighting crime. More than 50,000 suspected gang members have been imprisoned since March. But having an unpopular policy may be a cost he is willing to incur, such as losing bitcoin. at least for now.

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