AMERICAS © The Economist
A president who boasts of managing the country’s wealth from his smartphone hardly inspires confidence. All the less in an over-indebted state, and even less when the said president invests in bitcoin. Welcome to El Salvador, where a year ago President Nayib Bukele made this cryptocurrency legal tender, on par with the dollar. Most adults downloaded the Chivo digital wallet, which the government promoted by offering the equivalent of $30 in bitcoins to its users, but less than half continued to use it once the kitty was spent. On the business side, less than one in five comply with the injunction to accept it. Bitcoin is way too volatile. That the president chose to make it official currency says a lot about his leadership style. Since taking office as “the coolest dictator in the world”, in his own words, he has run his country of 6.5 million people like his private fiefdom. “The decision on bitcoin was not the subject of any debate”, recalls Claudia Ortiz, a personality of the opposition.
For some time, the president has preferred to focus on the war against gangs. This kind of policy is appreciated, and Bukele enjoys a popularity rating of over 80%.
But the economy could catch up. After a strong recovery in 2021, growth is expected to be just 2.9% this year. Rating agencies have downgraded El Salvador’s creditworthiness, making public borrowing more expensive. Investments of public money in bitcoin further aggravate the uncertainty. The government will likely succeed in raising the funds to settle an $800 million bond maturity next January, but the worrying signs are mounting. As lawmakers approved financial infrastructure spending to promote bitcoin usage, they slashed education and health budgets. A volatile currency and ruler could spell an equally volatile future for the country.
Too volatile, Bitcoin does not appeal to businesses or households.