Nayib Bukele’s failed Bitcoin experiment in El Salvador

Well, it did not happen. Instead, Bukele’s ambitious efforts drove the front against the great cryptocurrency of 2022.

Bitcoin, a high stakes bet for Bukele, seems to have failed. Approximately 70 percent of Salvadorans do not have a bank account and work in the informal economy. Meanwhile, remittances represent an overarching role in the country’s economy: With around $ 6 billion in 2021, they were more than 25 percent of GDP, ranked among the highest proportions in the world. About one-fifth of El Salvador’s population lives in the United States.

But 10 months after El Salvador officially introduced Bitcoin as a legal tender, the cryptocurrency has lost around 60 percent of its value. Bitcoin is a form of cryptocurrency or digital currency that is traded openly without interference from a central bank, and allows people to make payments to each other via an online system.

As part of the launch, Bukele’s administration budgeted $ 200 million to create a state-sponsored crypto app called El Chivo Wallet, which included an initial $ 30 bonus as an incentive for users to download it. So far, experts have estimated that the country has spent $ 425 million on its Bitcoin project.

Bukele’s move to make the government an early adopter of Bitcoin earned him praise from major cryptocurrencies and criticism from the international financial community. Most of the data on Bitcoin consumption and usage has come from Bukele itself via Twitter. In January, the president said that was it 4 million El Chivo Wallet users.

But three economists recently conducted a national survey to measure cryptocurrency use and its effects in El Salvador. Their findings were published in April by the US National Bureau of Economic Research. Despite many efforts by the Salvadoran government to make Bitcoin happen (for example, it established a public veterinary hospital where all services cost 25 cents as long as payment is made with a crypto wallet), its use has been overwhelming, economists found.

“[U]”sage of bitcoin for daily transactions is low and is concentrated among banks, educated, young and male,” wrote researchers. Initially, more than half of Salvadoran households downloaded El Chivo Wallet, but virtually no one has downloaded it this year. They found that nearly 20 percent of people who downloaded the app did not use the $ 30 bonus. Almost 61 percent of people have not used the app after using the bonus.

Perhaps that’s why many El Salvadoran policy observers and local pundits have called Bukele’s Bitcoin bet a gimmick “to launder the government’s growing authoritarianism on the world stage,” as Salvadoran journalist Nelson Rauda Zablah put it in a New York Times op-ed last week. Rauda Zablah called Bukele’s experiment and aerial survey. A fellow at the London School of Economics recently told CNBC: El Salvador’s economic policy “is essentially magical thinking.”

“Maybe $ 425 million for the United States or even California is nothing. But in El Salvador, it’s about 6 percent of the national budget, said Ricardo Valencia, assistant professor of communications at California State University, Fullerton, in an interview. “We see the effect of Bitcoin gambling in the lack of investment in infrastructure there.”

According to Valencia, crypto in El Salvador will end up looking more like hell than a mirage. “It comes with authoritarianism, dissent, oppression,” he said, referring to Bukele’s strong manhood and hard line policies to deal with growing gang violence.

Still, Bukele doubles. He insists that “Bitcoin is the future” and remains well-liked by Salvadorans; A poll put his approval rating at 85 percent, the highest of any Latin American leader.

Meanwhile in Africa, the Central African Republic adopted Bitcoin as a legal tender in May. It is one of the world’s poorest nations, ranked second last in the UN Human Development Index. The government should take into account the early lessons from Bukele’s Bitcoin experiment.

Marcela García is a Globe columnist. She can be reached at [email protected]. Follow her on Twitter @marcela_elisa and on Instagram @marcela_elisa.