The collapse of cryptocurrency has cost the country millions of dollars, but President Nayib Bukele is telling residents not to focus on the economic downturn.
A sign reads "aceptamos bitcoin" ("we accept bitcoin").
BY JEFF ABBOTT
JUNE 30, 2022
Bitcoin, the best-known of the world’s virtual currencies, has collapsed, losing trillions of dollars in the process along with all of the other cryptocurrencies. This has created massive losses for the nation of El Salvador, which in 2021 became the first country in the world to accept Bitcoin as legal tender. It is estimated that the fall in Bitcoin’s value has cost the Central American government more than $50 million.
“The failure of Bitcoin has freed us from a catastrophe.”
Nayib Bukele, resident of El Salvador, invested more than $100 million in the digital currency after a law was pushed through the country’s legislative branch in less than seventy-two hours last September. The law was approved without any oversight or fiscal research into what the cryptocurrency would mean for the country’s economy.
But the crypto crash is not being felt equally: the majority of Salvadorans remained skeptical of the currency and did not utilize Bitcoin.
“Most people still use dollars to make their transactions,” Ricardo Castaneda, a Salvadoran economist with the Central American Institute for Fiscal Studies, tells The Progressive. “The main impact is the loss of public money that had been used to buy Bitcoin. The fall of Bitcoin does have implications directly because of the money that [the people] have paid through their taxes.”
He adds, “It is as if someone went to bet in a casino with the people’s money, and they are currently losing.”
The lack of popular support for the use of Bitcoin throughout El Salvador means that the effects of the loss on residents have yet to be seen.
“The failure of Bitcoin has freed us from a catastrophe,” Carlos Acevedo, an economist and former president of the Central Reserve Bank of El Salvador, tells The Progressive. “If Bitcoin had been successfully received that would have meant people were using Bitcoin, that taxes were being paid through Bitcoin, that people were sending remittances through Bitcoin. Then this fall in the price of Bitcoin would have been catastrophic, but almost no one is using it.”
El Salvador was the first country in the world to recognize cryptocurrency as legal tender; it was presented as a cheap and easy way for migrants to send remittances from the United States home to family members.
But nearly one year after the country adopted Bitcoin, the government found the population resistant to adopting it. Initially, the government had given $30 to every user that opened a Chivo account. But this backfired.
“They took out the $30, but just to [keep as cash],” Morena Herrera, a feminist and human rights deffender in El Salvador, tells The Progressive. “It is a currency that is of little interest to the people.”
According to Acevedo, only around 2 percent of remittances are sent back through the cryptocurrency, and no one is paying their taxes with it.
Bukele had promised the public that Bitcoin would reach a value of $100,000 per coin by the end of the year, but it never reached that level—rather, it fell drastically. But as the country faces the collapse of Bitcoin, Bukele is urging the population to not focus on the collapse.
“Bukele made a statement telling people to not look at the Bitcoin chart,” Herrera says. “He said ‘It will go up, enjoy life.’ ”
El Salvador has seen a rapid deterioration of conditions within the country in the three years since Bukele took power. Since March, the president has ruled the country under a State of Emergency to combat gangs, resulting in the incarceration of more than 40,000 people.
Bukele requested the emergency declaration following the deaths of more than eighty people in one weekend, and has since accused the gangs of trying to form a guerrilla movement against the power of the state.
“This government came in with a huge anti-corruption discourse. But in practice, what we have found with the facts is that there has been a systematic practice of hiding information.”
Human rights organizations have criticized the declaration and the violation of rights. In addition to those who have been arbitrarily arrested under the state of emergency, at least forty people have died in prison since March, according to human rights organizations.
The state of emergency was extended yet again for another thirty days on June 21.
At the same time, Bukele has overseen the systematic co-optation of the state in a move that many have referred to as authoritarian. He maintains direct control over all branches of the state as part of an attack on democratic institutions, which has meant that corruption is running rampant.
“This government came in with a huge anti-corruption discourse,” Castaneda says. “But in practice, what we have found with the facts is that there has been a systematic practice of hiding information.”
He adds, “In the government’s discourse, yes, it is fighting corruption. But in practice, what it is doing is destroying any and all efforts that really fight corruption.”
In June 2021, the administration shut down the Organization of American States-backed International Commission Against Impunity in El Salvador. An action that was met by dismay from the United States, which had invested two million dollars in the anti-corruption body just months prior.
Throughout all of this, the adoption of Bitcoin has further permitted corruption and strengthened Bukele’s control over the country.
As Castaneda says, “The president has control of all institutions.”
Jeff Abbott is an independent journalist currently based out of Guatemala. “The Other Americans” is a column created by Abbott for The Progressive on human migration in North and Central America.
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