El Salvador on the brink of bankruptcy
At a cryptocurrency conference in Miami in May 2021, President of El Salvador Nayib Bukele announced a plan to recognise Bitcoin as legal tender, treated equally with the US dollar – the country’s existing currency. No internal consultations or analyses were conducted, and several days later the congress voted in favour of the new legislation. Despite the objection of the World Bank and warnings of the International Monetary Fund (IMF), on 7 September 2021 Ley Bitcoin officially entered into force.
The plans to implement the new ‘currency’ were very ambitious and extensive. More than 1000 bitcoin ATMs were installed throughout the country, the government promised to give away to adult citizens USD 30 in Bitcoin for installing a national BTC wallet application, and a plan for a tax-free crypto-mining hub called ‘Bitcoin City’ was developed. The president of El Salvador claims that he has purchased 2 400 BTC tokens for over 100 million dollars so far.
One year after adopting the new law, Moody’s rating agency reports that El Salvador is on the brink of bankruptcy, indicating Bitcoin as one of the causes. Currently, the public debt of El Salvador amounts to USD 23 billion, of which USD 800 million should be paid to the IMF until 2023. The crisis related to the market valuation of tokens which has persisted since January 2022 caused a significant fall in the value of the government’s cryptocurrency resources – by ca. 60%. The planned issue of Bitcoin-backed bonds which was to save the country from insolvency has been delayed, probably due to lack of interest among investors. Despite the dire economic situation and the spectre of crisis, the president still posts information on Twitter about the purchase of subsequent tokens.
Source: https://businessinsider.com.pl/finanse/salwadorowi-grozi-niewyplacalnosc-przyjal-bitcoina-jako-pierwszy-kraj/4g61tj4
