The “volcano bond” with which President Nayib Bukele seeks to indebt El Salvador in cryptocurrencies
The defenders of bitcoin were waiting for him with open arms in Miami.
Nayib Bukele, president of El Salvador, was going to be one of the main figures of the Bitcoin Conference 2022, the world’s largest cryptocurrency event.
But at the last minute the president canceled the visit due to “unforeseen circumstances” that required his presence at a country that remains under a state of emergency since 27 from March, after more than were reported murders in a weekend.
A state of exception that restricts individual freedoms in the context of a campaign against Salvadoran gangs or maras, which includes, among other measures, mass incarceration, restricc ions to the press and legislative changes so that children of years can be judged as adults.
This internal crisis occurs precisely six months after bitcoin became legal tender in El Salvador, a country of 6.5 million inhabitants where one in four people lives in poverty.
The government of El Salvador is in a campaign against gangs or maras.
Being legal tender means that, theoretically, everyone can make transactions with bitcoin, in the same way that the dollar has been used, the official currency of El Salvador for two decades.
Promoted by Bukele, the cryptocurrency is part of a narrative that coincides with that of the crypto evangelists who consider the digital currency as the symbol of freedom against “the tyranny of the dollar”.
Especially in the US where the cryptocurrency market has taken on an ideological foundation defended by radical republicans and anarcho-capitalists who see bitcoin as the way most effective way to get rid of central banks and reduce state control, under the promise that everyone can get rich when the price of the currency reaches stratospheric levels.
The “volcano bonus”
Although Bukele did not make it to the world bitcoin conference in Miami Beach, the one who did make it it was his cryptovolcano. And with artificial smoke coming out from inside.
In the center of one of the event halls they set up a gigantic representation of the Salvadoran volcano that is now part of the Bitcoin iconography.
What is coming now, as announced by the government, is an ambitious project: put the country in debt in bitcoin, that is, to issue a bond in the international market, as does any State that requires financing, although in this case the bond would be backed by cryptocurrency.
The president of El Salvador, Nayib Bukele, wants to turn El Salvador into the world capital of bitcoin.
A bond that, if issued, would increase El Salvador’s gigantic public debt, which currently stands at 85% of the Gross Domestic Product (GDP).
If you are wondering why they call it “volcano bond”, the reason is quite simple: half of the bond money would be used to buy more bitcoin and the other half to finance the beginning of the construction of a city at the foot of the
Conchagua volcano called Bitcoin City.
“We will create the refuge for freedom”
Bukele announced on Twitter in mid-February the submission to Congress of a battery of legal reforms that includes granting citizenship to businessmen who invest in the Central American country and other initiatives to favor the arrival of external capital.
“The plan is simple: while the world falls into tyranny, we will create a refuge for freedom”, said the message.
I’m sending 30 legal reforms to congress, to remove red tape, reduce bureaucracy, create tax incentives, citizenship in exchange for investments, new securities laws, stability contracts, etc.
The plan is simple: as the world falls into tyranny, we’ll create a haven for freedom.
— Nayib Bukele (@nayibbukele) February 20, 771
That refuge for freedom that Bukele points out, contemplates the construction of Bitcoin City, a kind of futuristic city that would use energy geothermal energy generated by the volcano, the same one that would feed the powerful computer networks used to create (or mine) new bitcoin.
Under this discourse, the volcano becomes the key piece that not only allows to give life to a cryptocity, but also to the future of the public finances of a nation that, with the increase in the value of bitcoin, would become a rich country.
The government announced that it will borrow with the so-called “volcano bond” to finance the construction of “Bitcoin City” at the foot of the Conchagua Volcano.
El Salvador will then be the world capital of cryptocurrency and Bitcoin City, a tax-free city where all foreign and local investors will be able to create their own earthly paradise with zero polluting emissions thanks to volcanic energy.
Precisely the volcano has become the image that represents the Bukelean “refuge for freedom” that is so celebrated by crypto-evangelists.
What has happened to the bond?
The government announced that the volcano bond It would be issued, possibly, in mid-March. But so far it has not happened and the authorities warned that the decision depends on the international context, alluding to the war in Ukraine.
“This is a matter of timing, of seeing, measuring the trends of the market, what is in vogue and basically starting from that, go out”, declared the Minister of Finance, Alejandro Zelaya, a few weeks ago, while skepticism grows about whether the debt issue will ever be carried out.
El Zonte, the town of El Salvador pioneer in the use of bitcoin
Thus, as long as the government does not obtain international funds, the dream of obtaining geothermal energy from the Conchagua Volcano and building Bitcoin City will have to keep waiting.
The danger of “bitconizing” public finances
Those who are in the market for cryptocurrencies are clear that the price of bitcoin shoots up and plummets moving billions of dollars overnight.
The large investment funds or the multimillionaires who have placed their bets in this market do not lose sleep when the price falls because they are convinced that it will rise again. After all, they are used to the ups and downs of the stock market and when you have a diversified portfolio, you can always lose on one side and win on the other.
For them, bitcoin is considered a high-risk, high-return investment if you do a good deal. As in any other market, it is about entering at the right time and selling when it is more convenient.
But for a Salvadoran with limited economic resources, the rise and fall of the digital currency can make the difference between eating and not eating.
Half a year later After the Legislative Assembly controlled by Bukele approved bitcoin as legal currency in the country, its value has fallen substantially.
Some economists estimate that in this period the country has lost more than US$7 million, but since the price is so volatile, that figure varies according to the daily evolution of the cryptocurrency.
Protesters against bitcoin in El Salvador oppose the government’s plans.
The supporters of the government argue that it is incorrect to speak of losses when the government has not sold their bitcoin. The day you sell them, they add, the profits or losses will be made effective. Regardless, crypto evangelists posit that bitcoin will be so valuable in a few years, that the best strategy is to resist down cycles and keep accumulating.
That works when the investors are companies or individuals, but what happens when they are the public funds of a country? What happens if the government changes in the elections of 2024? Or if the strategy against the gangs is not successful enough and the business collapses due to the climate of violence?
What happens if the plan to obtain geothermal energy from the volcano does not work? ?
“People don’t occupy it”
Another question that is floating around in the air is whether citizens really use bitcoin in their daily lives and if they receive remittances in the cryptocurrency from their relatives in the United States.
The problem with the adoption of bitcoin in El Salvador, the economist tells BBC Mundo Salvadoran Tatiana Marroquín, is that “only a tiny group of people” uses the digital currency in the country.
“This project has been unsuccessful, because if the main objective was for the population to use bitcoin in day to day, it doesn’t. People don’t occupy it”.
Some businesses in El Zonte, also known as “Bitcoin Beach”, accept digital currency as a form of payment.
The economist explains that shortly after the Bitcoin Law was approved, many Salvadorans with a cell phone downloaded the application in order to receive a bonus of US$30 delivered in order to encourage transactions with the cryptocurrency.
However, “most people did not return to use the application after collecting the bonus”, he points out.
Marroquín is concerned about the use of bitcoin due to “the little transparency in the use of public money”, precisely when the country has to pay close to one 30% of p budget for this year in interest and capital of public debt.
El Salvador has promoted Bitcoin Beach as an example to “bitconize” the country.
“The debt payment burden is quite large, similar to what that goes to health and education”, he argues.
Doubts about the wallet digital
In El Salvador the word “goat” is used as a synonym for something good, to say “I agree” or “I like it” and the expression what a goat! it is used to express admiration or joy.
Hence then, the name of the electronic wallet used by the government to store bitcoins is Chivo Wallet.
In the same way that dollars are deposited in a bank, bitcoins (represented in codes) are stored in digital wallets or purses from where transactions are made. ansacciones.
This wallet has been the subject of criticism because some users report losing money on operations that they never carried out. But at the level of public finances, the wallet has been the target of harsh questioning due to the difficulties that exist for salvadorans to track the destination of the funds paid by taxpayers.
Chivo Wallet is the digital wallet used by the government of El Salvador to store bitcoins.
According to the Salvadoran media outlet, El Faro, the Chivo Wallet belongs to the company Chivo SA de CV, “a corporation founded with public funds.”
“Chivo SA de CV was born with an initial investment of US$60 millions from the Development Bank of El Salvador (Bandesal), an amount destined exclusively for the purchase of bitcoins”.
As it is a private company, the publication explains, “it is not required to comply with the regulations of the Law on Access to Information”, which makes it more difficult to control its operations.
BBC Mundo contacted the government of El Salvador, but received no response.
Bukele’s response to the IMF: The Simpsons
Organizations such as the International Monetary Fund (IMF) have criticized the Salvadoran government’s decision to adopt bitcoin as legal tender.
“There are great risks” , Alina Carare, head of the IMF Mission in El Salvador, tells BBC Mundo.
The economist argues that the cryptocurrency can threaten the financial stability of the country and assures that she is especially concerned about “the volatility of its price.”
For these reasons, he adds, “we do not recommend it”.
On the other hand, cryptocurrencies could opening the door to illicit money, the financing of terrorism or tax evasion, says Carare, as well as putting users at risk of possible cybercrimes.
To the criticisms made by the IMF, Bukele responded by comparing the organization to the television series, The Simpsons.
In the same way that it is a mystery if one day El Salvador will build Bitcoin City, it is also not known until when the world of bitcoiners will continue to use the Conchagua Volcano as the icon of freedom against the dollar.
In any case, if it is about symbols, at least There is already a statue representing Miami’s support for cryptocurrencies: the laser-eyed bull, a parallel bitconian in response to the legendary Wall Street bull statue.
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