El Salvador's leader wants to go in even bigger on bitcoin

 

El Salvador's El Zonte is now popularly known as "Bitcoin Beach," for being the first town to use the cryptocurrency as a form of payment for services, products and salaries. Juan Carlos for NPR

CARRIE KAHN-March 27, 2022

SAN SALVADOR, El Salvador — The president of El Salvador is making a huge bet on bitcoin with his country's treasury. President Nayib Bukele is hoping to launch bitcoin-backed bonds to raise $1 billion for the country.

Bukele wants to raise the funds through international cryptocurrency traders, and to avoid his critics in the United States, including at the International Monetary Fund.

Last year, Bukele got El Salvador to become the first nation to adopt bitcoin as legal tender, right alongside the national currency, the U.S. dollar.

The bitcoin bond launch would mark another first of its kind. But while these moves are welcomed by crypto enthusiasts, they've raised concerns among detractors of the popular, unregulated asset market.

El Salvador's finance minister had announced the launch would happen in mid-March, but on Tuesday, he said it was postponed because of Russia's war in Ukraine and cryptocurrency volatility, Reuters reported.

María del Carmen Aguirre talks about the advantages of using bitcoin and a digital wallet for her business, a convenience store which has her name, in El Zonte beach town.

Juan Carlos for NPR

They renamed it Bitcoin Beach

At El Zonte beach on El Salvador's Pacific coast, María del Carmen Aguirre is a fan of the president's crypto-backed plans. A sign outside her small store lets customers know the cryptocurrency is welcome for purchases. Signs like this one have popped up across this small Central American country.

 

"Thanks to my bitcoin earnings, I was able to buy a lot for my little store," she says, like a new griddle for making pupusas, El Salvador's signature stuffed tortilla, and a new refrigerator.

As three large cows skirt by on the sand road outside her store, the 51-year-old grandmother says she wasn't an early adopter like many here in the community that's been renamed Bitcoin Beach. She waited until the president made bitcoin legal tender last September.

"If I'd gotten in before, I would have been able to buy a car with my earnings," says Aguirre.

A beachfront restaurant in El Zonte beach town.

Juan Carlos for NPR

Left: A sign informs costumers that bitcoin is accepted for payment in a major gas station chain. Other businesses including fast food chains also take the digital cryptocurrency. Right: The María convenience store accepts bitcoin and digital wallet payments in El Zonte beach town.

Juan Carlos for NPR

Bukele became a world crypto star

This is the exact testimony President Bukele loves to promote. He insists bitcoin helps millions here who don't have traditional bank accounts, especially those getting hit with high fees on money transfers from relatives abroad.

The 40-year-old leader, a voracious tweeter who prefers jeans and baseball caps over suits, has become a star among crypto backers around the world.

"We like him because when you follow him on Twitter, he's really funny — right? — with all the crypto memes," says Jaap Jan van Hengel. He and his brother Martin, both in their 20s, are visiting from the Netherlands. They say they've been able to buy nearly everything on vacation with bitcoin.

Brothers Jaap Jan and Martin van Hengel talk about using bitcoin in El Zonte beach town.

Juan Carlos for NPR

"We like to go here to support the people who accept bitcoin ... and to see how it works. It's pretty cool," says Martin van Hengel before jumping into a large rental SUV.

But despite a strong economic recovery last year, El Salvador has real money problems. Bukele asked the IMF for a loan but talks broke down after the institution objected to his bitcoin binge, citing risks for markets and consumers.

Undeterred, Bukele has pushed forward with the bond. He plans to use half the proceeds for infrastructure, including what he calls Bitcoin City, a tax-free zone at the foot of an extinct volcano. He hopes new bitcoins can be mined there using geothermal power from the volcano.

An advertisement for the digital wallet Strike, used in El Zonte, El Salvador, as a way to do bitcoin transactions. Through the app, users can buy and sell bitcoins or make and receive various kinds of payments.

Juan Carlos for NPR

Analysts say "it's a heck of a gamble"

But Jaime Reusche, a vice president at Moody's sovereign risk group, is among those skeptical that bitcoin can save El Salvador.

"It's a heck of a gamble. This would be the first of its kind throughout the world," Reusche says.

Moody's estimates El Salvador may have actually lost as much as $22 million when the volatile currency recently took a plunge. Bitcoin has lost more than a quarter of its value since El Salvador made it legal tender last September, financial news site FX Empire said on Monday.

Reusche says traditional investors are wary of Bukele's speculative use of the National Treasury and other ways he's ruling.

"However, the president seems to be emboldened by the fact that his popularity remains sky-high inside the country," he adds.

President Nayib Bukele of El Salvador gestures during his speech at the closing ceremony of the Latin American Bitcoin and Blockchain Conference at Mizata Beach, El Salvador, on Nov. 20, 2021.

Marvin Recinos/AFP via Getty Images

Bukele enjoys broad approval

A CID Gallup poll in January and February listed Bukele as the most popular president in Latin America, with an 85% approval rating.

"That's because Bukele's message is simple — that he's ousted corrupted elites who plundered the country," says Alvaro Artiga, a political scientist at the Central American University in San Salvador. "And he portrays all his critics as those former elites desperate to get back into power."

But there are many critics who say Bukele's rule has become increasingly authoritarian. Since taking office, he has fired independent judges and prosecutors and stacked the Supreme Court with justices who just cleared the way for him to seek reelection in 2024, despite a constitutional ban. He has also been accused of spying on journalists.

NPR attempts to interview Bukele, his spokesperson and several leaders of his political party were all declined.

Santos Antonio Franco Valle, 23, wears a shirt commemorating the day the news came out about bitcoin becoming a legal tender of his country, El Salvador. He runs a convenience store in El Zonte.Juan Carlos for NPR

U.S. officials also concerned about Bukele have sanctioned top aides suspected of secretly paying off gang members, and some Congress members from both parties are concerned El Salvador's bitcoin usage could hurt the U.S. financial system.

Bukele shot back at that last point, tweeting, "OK boomers... You have 0 jurisdiction on a sovereign and independent nation. We are not your colony. Stay out of our internal affairs."

The state gave Salvadorans $30 worth of bitcoin to try it out

Bitcoin remains his big play, and he advertises it repeatedly on national television.

But many Salvadorans are still reluctant to adopt it. A lot of them immediately cashed in the $30 the government gave away in bitcoin last year to jumpstart use of the cryptocurrency.

People get help on issues or setting up their digital wallet at a Chivo Wallet ATM post. The Salvadoran government offered residents $30 worth of bitcoin to use the new digital wallet, though some Salvadorans say they took the money out rather than use the bitcoins.

Juan Carlos for NPR

Strolling along El Zonte — aka Bitcoin Beach — Laura Castro says she cashed her bitcoin in and took her mom out for dinner.

She likes a lot of what the president does, especially building roads and bridges, says Castro, a marketing student in her 20s.

But laughing nervously, she says, "it's worrying we don't know what's in store for our country's economic future."