“El Salvador is the first country in the world to adopt Bitcoin as legal tender“, this headline was spread by world media in September last year.
By: Working Class Platform (PCT) of El Salvador
The “millennial” president Nayib Bukele would impose this decision presenting it as the economic solution that would get the country out of the severe monetary and fiscal situation it faces by turning the country into the world capital of cryptocurrency.
Millions of dollars were invested in the promotion of the cryptocurrency, in the development of a virtual “Civo Wallet”, in the construction of stalls where there would be hundreds of ATMs for cash withdrawals, 30 dollars was given as a welcome bonus to those who downloaded the application on their phone, hundreds of awareness days were held, thousands of ways of use were presented, advertising, forums, conferences, visits of bitcoin investors. However, the reality has been stronger and bitcoin itself has ensured the Salvadoran population rejects it, due to its volatility, the digital divide, but also the lack of confidence in an experiment that only demonstrates the failure of the current government in terms of economic policy.
Bukele also made the following announcement at the Labitconf: “I thought we had to make a big announcement this week about bitcoin. So today I want to announce that we are going to build the first bitcoin city.” Labitconf is an annual event that brings together cryptocurrency fanatics, held in El Salvador almost a year ago in November 2021.
Bitcoin City is a metropolis that will be funded with bitcoin-backed bonds, will be tax-free, except for VAT, and the profits will be used half-and-half, to pay the bonds of the municipalities, and for public infrastructure and maintenance of the place. While Bukele did not say the date for inauguration or construction, he did inform its location, in the coastal municipality of Con Chagua, department of La Unión. This city will have geothermal energy, residential and commercial areas, green areas, and its own airport, according to Bukele’s utopia.
But several questions arise, such as the financing for its construction and operation, whether it will really bring benefits to the poorest, and who will really benefit from all this.
According to Finance minister Alejandro Zelaya, Bitcoin City will be financed by the issuance of “volcano bonds”, complying with all the securities regulations of a sovereign bond, and verifying the cash flows of the buyers to assure the inexistence of illicit activity at the time of the transaction. These bonds would be issued for ten years and developed by leading digital asset firms such as Bitfinex and Blockstream. All this, of course, is part of a legislative reform that has already been approved by the pro-government majority in Congress. All this seems to be a desperate measure by the government to raise funds, since an IMF bailout seems unfeasible at this point, as the body demands the repeal of the bitcoin law due to the high risks and volatility of this cryptocurrency. In fact, the IMF warned El Salvador about the growth of debt exceeding 95% of GDP in a November 2021 report, due to the imbalance and economic waste of this government. According to the Bukele government, the bond issue was planned for the first half of this year but the issue was not discussed again, obviously due to the instability of the cryptocurrency itself, and Russia’s invasion of Ukraine, which has generated instability in the capitalist markets. In the face of all this, doubts and suspicions cannot be avoided, as there are no clear rules regarding its operation and investors, and there is a high probability of it becoming a tax haven and prone to money laundering.
We can’t see real benefits for the poorest although, according to the government, it will bring zero tax on housing, and income to capital. But the houses would need investors who are willing to risk in this cryptocurrency and the investors’ money could have a dubious origin, at the same time that many people do not have access to technology, or sophisticated devices to make this type of transaction and much less that this is a way of life. If we add to Bukele’s utopia that only in that place could transactions be made, since Salvadorans, after a year of the legalisation of Bitcoin as legal tender, still do not make use of this currency because of their distrust in it.
This is in addition to a World Bank report, which states that El Salvador has one of the highest proportions of vulnerable population in the region, with 48 per cent, with high rates of criminality, violence and the current state of exception, which leads to more poverty and therefore emigration, not to mention corruption. In short, we cannot be sure that this economic policy can lift Salvadorans out of poverty or even improve their years-long precarious standard of living due to neoliberal and populist policies such as this one.
Who would really benefit from this measure? The bourgeois and oligarchic powers rub their hands together when the fiscal and investment attraction policies propose lower taxes and no clear accountability because they see the opportunity to increase their wealth. They do not care whether or not there is respect for the rule of law or labour laws. This added to the fact that they will be able to invest whatever they want without any restriction, let alone verifying the origin of those funds in cryptocurrency and, of course, benefits the image of the Bukele government by presenting this as something that will save the economy on the verge of collapse due to its failed and corrupt policies.
We cannot fail to mention that this experiment is like banging one’s head against a brick wall and its ups-and-downs together with the weakening of institutions and the concentration of power that increase the unpredictability of the country’s financial system, generating historic debts and the inability to fall into default furthering the crisis that only affects the poorest.
In conclusion, this great utopian project of the current government is a desperate and unviable measure at a time when the options for obtaining funds are running out, and at the same time benefiting the same old factional powers and the new bourgeoisie of the Bukele government.
This measure, which was announced with great fanfare at Labitconf, as well as the Bitcoin launching in September 2021, has the luck of an orphaned child, his birthday was not celebrated, there was no cake, no piñata, no guests, nor horchata. A year of Bitcoin passed without a word from Bukele. Apparently, the experiment has only proven again the irresponsibility of the current government to spend millions of dollars on the purchase of cryptocurrencies and consequently the loss of resources of the Salvadoran working class.
After one year of Bitcoin, it only proves that the Salvadoran economy is going nowhere and the precarious conditions for the working class continue to worsen.
IMMEDIATE REPEAL OF THE BITCOIN LAW!
FOR THE RECOVERY OF OUR MONETARY POLICY!
NO TO DOLLARISATION AND BITCOINISATION OF OUR ECONOMY!
