What the cryptocurrency collapse means for El Salvador’s economy: NPR

ADRIAN FLORIDO, VERT:

The recent collapse in the value of cryptocurrencies has given many investors in these digital assets a lot of pain. The collapse also creates problems in El Salvador, whose president, Nayib Bukele, last year used bitcoin as one of the country’s legal tender alongside US dollars and has invested more than $ 100 million in bitcoin. To help us better understand what this could mean for El Salvador’s finances, we are joined by Julio Sevilla. He is an associate professor at Terry College of Business at the University of Georgia. Julio Sevilla, welcome to EVERYTHING THAT IS ASSESSED.

JULIO SEVILLA: How are you, Adrian? Thank you for inviting me.

FLORIDO: Thank you for joining us. El Salvador was the first country to use bitcoin as its official currency. Can you remind us why President Nayib Bukele thought this was a good idea?

SEVILLA: Yes. So there were two reasons why the president often made this effort. One of them was that he wanted the people of El Salvador to have more access to technology and financing because many of them did not have bank accounts, and he did not want them to just rely on cash. What has been seen, however, is that these people are less likely to use bitcoin. The second reason is that he thought it was an excellent investment for El Salvador, because the moment he started with this plan last year, bitcoin and other cryptocurrencies really flourished, so he thought he created economic opportunities for El Salvador.

FLORIDO: Well, the president has invested more than $ 100 million in bitcoin. How much money does it represent for a country as small as El Salvador?

SEVILLA: So even for a country that is small for El Salvador, it is not necessarily a large amount. The president took out $ 150 million from the reserves in the country to invest in these bitcoin projects, and that represents about 4% of the reserves. So it’s obviously not an amount they can take for granted, but it’s not an amount that necessarily, you know, will bankrupt the country. GDP is $ 25 billion right now. The country’s debt is more than $ 20 billion – a very small amount. But still, you can not really afford to make bad investments when your finances are uncertain to begin with.

FLORIDO: Do you have a sense of how everyday Salvadorans feel about the president’s investment in bitcoin?

SEVILLA: So it does not seem to be a popular idea, but the plan to really popularize bitcoin in the country has not been successful. Only about two-thirds of the population downloaded the app. And even though they were offered $ 30 just to sign up – and based on some action, only about 20% of those who signed up for the app use it. So the idea of ​​bitcoin does not seem to be very popular among the majority of the population of El Salvador.

FLORIDO: Has Bukele met any opposition from his government to his decisions on bitcoin?

SEVILLA: The reality is that the president does not currently have many controls in the government. Interestingly, his popularity continued, at least until recently, to rise to a level in the 70s, 80%. So in Congress, he can basically do whatever he wants because, you know, his party has a qualified majority, and his legislators are very loyal to him. He actually swept the Supreme Court, the judges who were there before, you know, he was elected – he removed them with loyalists. So at this point he controls the executive, the legislature and also the judiciary. So unfortunately there are no controls there. And that’s why he is able, you know, to take these eccentric initiatives without much setbacks.

FLORIDO: It sounds like the country’s economy is not going to collapse if bitcoin were to implode altogether. But El Salvador has had a difficult economy for years. And I wonder if President Bukele’s devotion to bitcoin could have other consequences for the economy.

SEVILLA: It definitely does. But there are other consequences of these decisions. El Salvador, for example, is heavily in debt, and the president has tried to negotiate with the International Monetary Fund to get this funding. But they have expressed that they are generally concerned about how the country is governed, that the president, you know, has no control over the Supreme Court and that he implements these strange initiatives. But El Salvador has inflicted this damage on its own.

FLORIDO: I’ve talked to Julio Sevilla. He is an associate professor at the University of Georgia’s Terry College of Business. Thank you so much for joining us.

SEVILLA: Thank you.

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