Nayib Bukele’s controversial bitcoin bet in El Salvador “Volcano Bonds”

The president of The Savior, Nayib Bukeleplans to issue bitcoin debt papers to oxygenate public finances, but its offer of the so-called “volcanic bonds” may be unattractive to investors, economists warn.

With the approval of Digital Assets Acton January 11, the president paved the way for the issuance of bitcoin bonds for approximately $1 billionalthough a former Salvadoran central bank president doubts they will be well received in the market.

“I don’t think there’s much appetitesaid economist Carlos Acevedo wing AFP.

In November 2021, at an international bitcoin forum, Bukele announced that he would publish cryptocurrency debt build “Bitcoin City“, a city in the east of the country that would operate with geothermal energy from the Conchagua volcano.

But last week, in its annual review of the situation in El Salvador, the International Monetary Fund (MFI) suggested to be careful.

“Given the legal risks, fiscal fragility, and largely speculative nature of crypto markets, authorities should reconsider your plans to expand the (El Salvadoran) government’s exposure to bitcoin, including the issuance of token bonds,” the IMF said in a statement.

In September 2021, Bukele made El Salvador the first country in the world to adopt bitcoin as legal tenderas well as the dollar, which has been in circulation since 2001.

He did it in order to Banking 70% of the population excluded from the financial system and reduce the cost of sending remittances from abroad to Salvadoran families, but cryptocurrency has had little acceptance in the country.

In 2022, El Salvador received $7,742 million in transfersbut only 1.6% of the total arrived in bitcoin, according to the Central Reserve Bank (BCR).

Besides, the bitcoin price fell: After trading at $68,000 in November 2021, it is now around $24,000.

In Salvadoran commerce, there are few transactions not bitcoins.

“At the beginning, out of 20 people, 10 wanted to pay in bitcoin; now in a week there are two or three people, ”he explains to the AFP Carlos Torres, who runs a cafeteria in downtown San Salvador.

Additionally, a survey of Central American University (UCA) showed that the 74% of Salvadorans have not used bitcoin in 2022.

Bitcoin” has been a failed bet from the point of view of the population,” he told the AFP the vice-rector of the UCA, Omar Serrano.

is the “only” Bukele measure that does not convince Salvadoransdespite the strong support garnered by the president for his anti-gang crusade, he added.

for the economist Raphael Lemusbitcoin is a “failed” policybecause “it does not meet a specific need of the population”.

Paradoxically, according to Acevedo, the low acceptance of the cryptocurrency freed Salvadorans from suffering losses when its price crashed. “The salvation (of the people) was in the failure” of bitcoin in the country, he said.

The sale of bitcoin bonds “will depends on the interest rate offered by the government, because the higher it is, “the more attractive it will be for those who buy”, he told the AFP the Economist Ricardo Castanedafrom the Central American Institute for Fiscal Studies (ICEFI).

Let Bonuses Help You raise the first bitcoin city “It could have a positive impact on the crypto world in general” and be considered “when lending money,” he also noted.

But Acevedo warned that the bonds would hit the market amid a “volatile” environment. “At least this whole year, I don’t see that it will be possible to stimulate a favorable situation to issue” debt, he said.

Meanwhile, Lemus maintained that the El Salvador’s fiscal situation “is unsustainable”with a public debt that is equivalent to 80% of GDP, so “buying volcano bonds is a speculative bet (and) you practically have to find sleeping millionaires”.

Bukele assigned $107 million from the purchase of bitcoin from September 2021 to October 2022. On November 17, he announced that he would buy one bitcoin per day, without specifying for how long.

In line with the president, the Salvadoran ambassador in Washington, Milena Mayorgahe was optimistic that “big business” will buy the bonds.

“We were in Europe talk to potential buyers and I think this is going to be important for President Bukele’s plans,” the diplomat told the state. Channel 10 Salvadoran.

(By Carlos Mario MARQUEZ/AFP)

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