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El Salvador’s $425 million Bitcoin (BTC) Experiment Isn’t Saving The Country’s Finances

While the country’s government has touted the potential of bitcoin to help solve its current economic problems, the reality is far different. Although El Salvador has been experimenting with bitcoin for the past few years, it has yet to take off, and its adoption has not significantly impacted President Bukele’s popularity at bitcoin-buyer.io. Instead, tourism in El Salvador has risen by 30% since they implemented the Bitcoin Law.

Bitcoin is not a nationwide currency. That’s because only the Federal Reserve has the power to issue dollars. While it is hard to mint out of thin air, it is possible to create a national currency. This would theoretically allow the country to issue more money if needed. Bitcoin’s value continues to rise, with El Salvador’s national currency worth nearly $2 billion in 2018.

El Salvador’s debt is too high. El Salvador has over $7.7 billion in outstanding bonds, so it would be hard to mint a new national currency. And it wouldn’t be sustainable. It would require a new central bank and a new government, which would make the country’s debt to GDP ratio more than triple.

El Salvador’s national currency hasn’t taken off

As Bitcoin’s price has tumbled by more than 70% since the announcement of its adoption in El Salvador, the federal government has found it difficult to obtain the cash it needs to pay its debts. El Salvador’s debt-to-GDP ratio is approaching 87% this year, and it is facing an even larger problem with renewed gang violence. The price of bitcoin is now a fraction of its peak in November 2021, making it more expensive for President Bukele to obtain loans.

The price of Bitcoin has not saved El Salvador’s fiat currency problems, but a recent survey by the Chamber of Commerce and Business of El Salvador shows that 86% of companies have never sold Bitcoin. The project is on hold, and the country’s government has decided to postpone the sale of a $1 billion bitcoin bond. El Salvador’s problems are far less bitcoin-related than it seems.

El Salvador’s adoption of bitcoin hasn’t hurt President Bukele’s popularity

As Bitcoin prices skyrocket, El Salvador struggles to keep up with its debt. The country’s bond market is in serious trouble, and international lenders are reluctant to lend money to the country. While bitcoin may help solve this problem, the adoption of virtual currency will not be good for El Salvador’s credit rating, as several credit agencies have already downgraded it. El Salvador’s government has been unable to launch its $1 billion bitcoin-backed bonds since it adopted bitcoin.

Although bitcoin has plummeted in value since El Salvador’s adoption last year, President Bukele’s New Ideas social gathering still controls the country’s Legislative Assembly. Its members recently ousted the attorney general and prime judges. Bukele’s party replaced the constitutional court judges and attorney general in May.

Investing in cryptocurrency has been a boon for El Salvador’s tourism industry, with many establishments accepting it as payment. 20% of tourism transactions are conducted using cryptocurrency. The tourism industry in El Salvador is up 30% in just six months, according to statistics compiled by the Ministry of Tourism. This increase is directly proportional to the rise in cryptocurrency interest. President Nayib Bukele has positioned tourism as the second most important boost to the economy by 2022.

In addition, El Salvador has begun accepting bitcoin as legal tender. The country’s treasury fund, backed by a fund of $150 million at the state-owned bank Bandesal, is already used to purchase bitcoin. The success of the law could determine El Salvador’s economic future. If you want to buy and sell with bitcoin you can use bitcoin trading software.  And with the adoption of bitcoin as a legal tender in 2021, El Salvador has become the first country to accept it as payment.

Final Words

El Salvador’s debt-to-GDP ratio has increased sharply as the economy continues to weaken. The country’s debt is rising by around 5% annually, and its government has no plans to reduce it. Meanwhile, the country is battling gang violence and financial ruin. Despite this, the government recently adopted Bitcoin as legal tender. 

Khaleel Ahmad

Quality means doing it right when no one is looking.

One Comment

  1. Thanks for sharing this news. By the way can you please share your list of the best new crypto to buy in 2022 with us? Thanks in advance for your help.

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