Ines AissaniOn Twitter, the young president of El Salvador “Nayib Bukele” announced that the country would now buy one bitcoin every day. This is a decision that may be surprising given the rather dramatic current context that the world of cryptocurrencies is going through.
Indeed, the major bankruptcy of the FTX exchange platform led to the closures of other related companies such as BlockFi (owned by FTX Ventures). The fall of the dominoes of crypto companies has caused many investors to lose their crypto assets.
Now is the time for doubt and loss of confidence for centralized platforms and for cryptocurrencies in general.
And, it is precisely in this precise context that Nayib Bukele announces that he decides to buy bitcoin every day.
For his detractors, Nayib Bukele is overreaching and zealous to show his determination of his pro-bitcoin policy. However, should we see this simply as audacity? Is there not in this gesture a well-established strategy which explains Bukele's decision?
What is the outcome of the legalization of bitcoin in El Salvador?
It's been a little over a year now since El Salvador made bitcoin legal tender in the country. It is in fact on September 7, 2022 that the young president Nayib Bukele had announced that bitcoin would improve the economic situation of the country. He also proposed to issue “Volcano Bond” which would make it possible to finance the country with bonds paid in bitcoin.
He added that this would attract new foreign investors while creating new business opportunities. In addition, the adoption of bitcoin would reduce the country's dependence on the US dollar. (As a reminder, El Salvador has been using the US dollar for twenty years to replace the Salvadoran “settler” after it collapsed.)
A year later, the newspapers rushed to answer the fateful question that everyone was asking: “Was the adoption of bitcoin as “beneficial” as the president had promised”?
However, is it really reasonable to carry out an assessment of a policy after only one year of implementation? Is this not a conclusion that can only be hasty and incomplete?
This is clearly not the case for certain “experts” who have published articles with radical responses to El Salvador's record. In the general press (especially but also in the so-called “crypto” press), the titles are evocative. We talk about “chaos”, “fiasco” and total failure.
Judge by yourself:
This is just a small sample of the countless articles that have (hastily) published on the failure of El Salvador's pro-bitcoin policy...
However, the president Nayib Bukele decided to react publicly to all these publications. He published an article on BitcoinMagazine to give his own assessment with supporting figures (from IMF and other international institutions). The title of his article is rather evocative with a French translation which boils down to this: “Stop buying the lies of the elites".
–>>You can read the full translation of the article, here.
The adoption of bitcoin has been a great success for the country's economy
Yes! It turns out that the results of the year were positive for the country as a whole! However, the economic context (need we remind you?) which followed the covid 19 pandemic and then the Russo-Ukrainian war was not advantageous.
Which country could have boasted of having had an exceptional financial year under such conditions? However, despite the slump, it seems that the Salvador shows promising figures for its economy. And it seems that Bitcoin has something to do with it….
In the words of the President of El Salvador, “in 2021, our GDP increased by 10,3%, tourism revenue increased by 52%, employment increased by 7%, new businesses increased by 12%, exports increased by 17%, energy production increased by 19%, energy exports increased by 3%, and internal revenues increased. up 291%, all without increasing taxes. And this year, the crime and murder rate is down 37%.”
Of course, even if certain figures seem difficult to really measure, such as the drop in crime, it would seem that overall, the results are positive.
Here is the infographic that was shared showing the positive figures for the year 2021:
A fall in the price of Bitcoin which pushes the president to constantly “reinvest”
Bitcoin has lost more than 70% of its value sinceYear 2021. It is a fact. However, the drop in the price of bitcoin and the cryptocurrency market in general is not enough to conclude that Bukele's policy has failed.
Bitcoin enthusiasts are used to the volatility of the Bitcoin price. For example, it has been announced a thousand times that “bitcoin was dead ” and no one would use it anymore. This now makes 14 years that it continues to increase in value over time. Despite occasional declines, bitcoin surpasses its all-time high each year, until reaching the $60,000 mark in 2021.
Thus, as a good connoisseur of financial cycles (obviously), the president of El Salvador was not indignant at the drop in the price of bitcoin. The government had in fact purchased a total of 2381 BTC, when it was around $40,000. This therefore represents a “theoretical” loss of half of the capital invested in bitcoin.
We use the term “theoretical” because as Finance Minister Alejandro Zelaya clarified, the country did not sell its BTC (and therefore did not lose money). So, today, while bitocin is trading around $16,000, the president has decided to buy one every day.
💡 Taking the price of bitcoin as a point of analysis in order to conclude on the success or failure of the adoption of bitcoin in El Salvador is a conceptual error. Conversely, if bitcoin reaches $60,000 again, we will not be able to conclude by affirming that the experience was a success. To judge the benefits of El Salvador's policy, there are many other factors to take into account than the price of bitcoin...
Does bitcoin really improve the country's financial inclusion??
The first big advantage of using bitcoin in countries where financial inclusion is lacking is that it immediately provides financial infrastructure. This is then used for fund transfers (locally or internationally). In fact, on this level (which is far from anecdotal), bitcoin has considerably improved financial transactions. Salvadorans living abroad sent more than $50 million during the first quarter of 2022. This represents a significant financial windfall than the money from the Salvadoran diaspora.
On the Bitcoin network, it is possible to send and receive bitcoins in seconds and at lower fees. Faced with such prices, El Salvador's commercial banks have drastically reduced fees on each transaction. This had a beneficial effect for citizens who are not yet inclined to use bitcoin for their daily financial transactions.
In order to use bitcoin, the government has set up a suitable wallet: the “Chivo Wallet”. This is a kind of mobile bank which therefore serves as an official bank for using bitcoin. Many people who - until now - did not have a bank account now have a cheaper and easier to use equivalent.
However, the transition is still difficult. Even if 4 million Salvadorans downloaded the application (out of a total population of 6,5 million), only 2% of transactions were made in bitcoin.
Slow adoption, as slow as it is in the most banked countries
Even if the figures are not exceptional, it cannot be denied that financial inclusion is on the rise. For a first year – despite the criticism made against bitcoin (and in particular from international institutions like the IMF– the figures are rather encouraging.
It seems that critics of the President of El Salvador's policies thought that the entire population would adopt bitcoin within a year....
This forgets that we are talking about one of the least banked countries in the world. When we see that it took more than 14 years in banked countries like France for 8% of the population to hold cryptos, we are entitled to expect the same deadline for Salvadorans.
We can also add that banked countries also benefit from a real ecosystem (influencers, companies, insurance, purchasing power, bank card, etc.) which facilitates the purchase of bitcoin online. The difference in acquiring bitcoin from a developed country and an emerging country is immense. In countries like El Salvador, purchasing bitcoin is a much more difficult reality...It goes without saying that adoption then takes “longer” than expected. The reverse would have been surprising to anyone with (even partial) knowledge of the country's infrastructure.
On this simple point, we can conclude that financial inclusion is underway, regardless of those who focus on the government's valuation of BTC capital, at the moment t.
A virtuous ecosystem creating new opportunities
Even more, the initiative propelled by Nayib Bukele has generated many small local initiatives. We can cite, for example, the example of the village “The Zonte” has become a true ecosystem for Salvadorans and bitcoiners around the world.
The village has become a real hub where residents and tourists concretely experience living with bitcoin as their main currency. The result is astonishing if we consider that many people are now opening their businesses without fear of being rejected by the bank. Anyone can instantly pay in bitcoin for the services and products they want. The village has seen its unemployment rate drop as business opportunities have exploded.
An entire ecosystem is taking shape and benefiting the entire population.
Thus, young people who had no other prospects for social advancement can today find jobs linked to blockchain. Employability is a priority in the country and bitcoin opens up new opportunities.
Is Nayib Bukele right to buy more and more bitcoin? YES!
The president may be taking risks but the positive results lead us to believe the opposite. He seems to be in control of the situation and seems to be decisive in his policies.
We can remain thoughtful in the face of the suggestions of the IMF which had urged the country to “remove the legal tender status of bitcoin” at the risk of not financing the country. In comments collected by the newspaper La Tribune, the IMF affirms “that there is significant risks associated with its use for financial stability, financial integrity and consumer protection“. The president stood up to the IMF and decided to maintain bitcoin as legal tender. The IMF and rating agencies like Fitch Ratings and Moody's immediately downgraded El Salvador's rating...
This certainly explains why so many unscrupulous journalists have rushed to write articles on a subject that they do not understand. After all, who can really argue with the most senior economists in the world?intelligentsia and especially the IMF?
Yet the IMF….Arf, must I recall here the famous policies “structural adjustment” recommended by the IMF which have been disastrous in Africa? Having such confidence when we have experienced such a failure deserves a certain measure it seems to me...The recommendations of the IMF were however also very clear and this resulted in decades of debt and stagflation in the continent, which , today, still struggling to get rid of it…
Obviously, the young president did his own research...
Useful resources:
- https://cointelegraph.com/news/el-salvador-celebrates-bitcoin-anniversary-a-year-of-ups-and-downs
- https://bitcoinmagazine.com/culture/el-salvador-bitcoin-one-year-later
- https://www.bfmtv.com/crypto/bitcoin/la-transition-vers-le-bitcoin-du-salvador-vire-au-fiasco_AV-202209080229.html
- https://www.nationalreview.com/2022/09/the-verdict-is-in-for-el-salvadors-bitcoin-experiment-it-failed/
