The International Monetary Fund has had enough of El Salvador's experiment as the first and only country in the world to adopt Bitcoin as legal currency. The IMF's board of directors is telling the Central American country that cryptocurrency poses "large risks" to the financial stability of the nation and its citizens.
In response, El Salvadoran President Nayib Bukele tweeted an internet meme that compared the IMF to Homer Simpson. A power-hungry populist who brands himself the "CEO of El Salvador," Bukele has become one of the world's foremost Bitcoin evangelists since pushing a law through Congress that requires businesses to accept the cryptocurrency for goods and services.
His grand plan has so far produced tepid results. El Salvador is believed to have lost as much as $22 million in reserves thanks to dramatic plunges in the cryptocurrency's value. Many users of the country's official Bitcoin wallet (known as "Chivo") have been targeted by fraud, with at least 1,000 people reporting that their identities were stolen through the app.
And despite Bukele's promise that Bitcoin would make life easier for the millions of Salvadorans who don't have bank accounts as well as those sending remittances from abroad, few appear to be using it in their daily lives. None of that has deterred Bukele, a former marketing executive known for his irreverent, internet-friendly antics. He keeps acquiring more bitcoins with the country's cash, bragging on Twitter about "buying the dip" on his phone while "naked."
Next month, in what experts say is its riskiest move yet, El Salvador will issue a first-of-its-kind $1-billion "Bitcoin bond." Half of the money raised from the bond offering will be used to build a tax-free "Bitcoin City" powered by an extinct volcano whose geothermal energy will be harnessed to mine new bitcoins, according to the government. The other $500 million will be used to purchase more bitcoins. The nation's traditional bonds have already been classified in the "junk" category.
Bukele insists the plan will help drive growth in a poor nation that has long struggled to ignite its economy. Experts are skeptical. They have questioned whether people may buy in for the novelty without considering the country's precarious financial situation. Although El Salvador's economy grew at a steep 10% in 2021, it remains in deep debt. El Salvador asked the IMF for a $1.3-billion loan to help cover those bills, but a deal looks unlikely given the nation's refusal to drop Bitcoin or make other financial adjustments.
Bukele, who frequently complains that the U.S. is too involved in his nation's affairs and who has cozied up to China, has embraced Bitcoin as part of his larger plan to remake El Salvador. He has shown increasingly authoritarian tendencies, sending soldiers to Congress to help push through a crime bill and purging the nation's courts to pave the way for his reelection, even though the constitution bans it.
His government has been accused of using the Pegasus software to spy on journalists, human rights defenders and even members of his political party, Nuevas Ideas. Several of his aides have been blacklisted by the United States for paying El Salvador's gangs to reduce homicides and provide political support.
Polls show a majority of Salvadorans distrust Bitcoin.Jose Garcia, 52, who sells phone chargers on a crowded plaza in downtown San Salvador, said he sees no use for the cryptocurrency, which his pastor calls "the devil's money." He said he downloaded the Chivo application when the government deposited $30 in every user's account to try to spark adoption. He went to an ATM to convert it to dollars and never opened the app again. “Most people took the $30 out and that’s it," he said.
Byron Sandoval, a 32-year-old tattoo artist who works at a stand nearby, views Bitcoin as too risky. He is paid mostly in cash, but when a customer wants to give him a digital payment using Chivo, he asks them to covert bitcoins into dollars first. Sandoval holds all his money on the app in dollars, because it doesn't fluctuate. "If they pay me in bitcoin, I can lose money," he said.
Some locals question whom Bukele's Bitcoin revolution is really for. He seems intent on luring the global cryptocurrency community to his country, promising to fast-track residency to those who invest large amounts of money here. Nelson Rauda, investigative journalist for El Faro, has raised a number of serious concerns about Bukele's Bitcoin rollout.The biggest ones revolve around the question of what it means for the nation when the president apparently has access to treasury funds on his smartphone.
Rauda's inquiries into who runs the Chivo wallet have been hampered by the government, along with queries about the details of Bukele's bitcoin purchases. The whole point of Bitcoin transactions is that they aren't transparent, he said. "It seems like a super-smart way to hide what you're really doing," he said. "There are a lot more questions than answers."
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