El Salvador is focused on Bitcoin (versus the International Monetary Fund). But it is heading straight for bankruptcy

Protests in El Salvador against the decision to make Bitcoin a mandatory currency – Ansa

Ni un paso atrás, don’t step back. El Salvador is and still is “Bitcoinland”. Neither the warning from the International Monetary Fund (IMF) nor the downgrade of the rating by the world’s major financial institutions has weakened the stubborn determination of President Neb Bockel. The Millennium Leader, who was elected in 2019 at the age of 38, emphasized this in no uncertain terms: “We can’t fight the future.”

The Minister of Economy, Alejandro Zelaya, had announced, for the next month, the issuance of government bonds in cryptocurrency worth $1 billion. It has been nearly five months since last September 7 when the smallest country in Latin America, the first and only country on the planet, adopted bitcoin as its current currency, along with the dollar.

That is, every private and public instance is obliged to accept this method of payment and holders of cryptocurrency can at any time convert them into US dollars and vice versa. Meanwhile, the value of the digital currency saw a sharp rise and then halved. At the time of its entry into circulation it was about 46 thousand dollars. In November it was approaching 70 thousand. Now it is 37 thousand. The roller coaster ride cost the government at least $22 million.

Unofficial data – transparency is not one of the main qualities of the young leader – but it is inferred from presidential tweets that, each time, Bukele announced with an eye to buying a digital currency, totaling about 1,400. On the other hand, it is impossible to determine the losses incurred by citizens. The official “Chivo wallet” platform, used for transactions, is private, albeit funded by public funds. Therefore, it has no obligation to report. So far it has not. Moreover, the little information provided is questionable. Chivo wallet, for example, claims to have more than three million users out of a total of 6.5 million, yet just over half of them don’t have access to the internet and 40% have a smartphone. The damage, however, looms large.

With more than a quarter of the population living in poverty, nearly half at risk of falling into poverty, and 43 percent of the black workforce, people have very few resources to defend themselves against financial fluctuations. So Bukele’s call to focus on “long-term profits” sounds somewhat surreal, as evidenced by periodic protests with the burning of one of the 201 blue cryptocurrency distributors scattered across the country’s main squares. Moreover, future earnings are far from certain. And this is always supported by the International Monetary Fund, which, after talking about the risks of “the financial stability and financial soundness of the nation” and “consumer protection”, threatened to block a $1.3 billion loan due to “unclear expectations”. Already in 2020, the Salvadoran public debt weighed 89% of GDP.

The following year, its bond performance was the worst in the world, with losses of about 30 percent. Now the issue of “encrypted addresses” could precipitate the situation. Thus, the hypothetical premise is more realistic than it was in June when, with a quick five-hour debate, the president’s party – which controls Parliament – approved a “Bitcoin Act” with a triple aim. First, it made the country – de facto dollarizing since the turn of the millennium – less dependent on the dollar and turning it into a new mining hotspot.

Unlike the current cryptocurrency, Kazakhstan, however, does not have oil, coal and gas fields in El Salvador to run powerful networked computers that “undermine” bitcoins, that is, they create them by manipulating complex loop algorithms. In fact, the electricity network does not even reach the entire population.

A problem that Bukele intends to solve by using geothermal energy from volcanoes. For this, foreign investment is needed and attracting it is the second goal with which the president justified “crypto development”. The third is the increase in remittances – which already account for a quarter of GDP – thanks to the elimination of commissions for those who send them via a Crypto wallet. However, there are still no indications that the country is approaching the triple target. Indeed, international analysts speak of a “disaster”. So why can’t the cryptocurrency rally be stopped? Are there hidden reasons behind the ‘BB plan’ known as Bukele and Bitcoin?

The names associated with “revolution B” are bewildering. Starting with Max Keizer, very close to the president: a former New York stockbroker turned star on Russian state television and a network guru. Bitfinex, the company responsible for issuing Bitcoin securities – as Nelson Rauda Zablah, a respected economic journalist tells us Faroe – Based in Kazakhstan, it was banned from Wall Street in 2021 after the platform was hacked, with users losing $72 million. It, along with its subsidiary Tether, had to pay a fine of 42 million for the lack of transparency.

The company is also part of Ifinex Inc Group, headquartered in the British Virgin Islands, under investigation by the New York attorney general on suspicion of providing inaccurate financial information. Therefore, many analysts see “Bitcoin” in the economic system as a way to turn the country into an international recycling center for organized crime.

Not only domestic – the so-called maras The mafias of the poor, who live by extorting slum dwellers and doing the dirtiest – and most violent – working for the great Mexican drug lords.

The pandemic has already forced the latter to ramp up web traffic to dodge barriers to real traffic. For narcos, cryptocurrency could represent an opportunity to expand their business. And for Bukele to fill state coffers despite international isolation – especially by the United States – due to his growing power, after his intervention in the Supreme Court and the discovery of the systematic spying of journalists and activists through Pegasus. Therefore, Bukele does not hold back. But it excites. Soon, he swears, he’ll start working in Bitcoin-City. The first city funded by cryptocurrency and the free zone will rise on the slopes of the Conchagua volcano from which it will draw the current for “extraction”. Unless the compressed energy explodes for a long time, swallowing the entire state.

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