El Salvador’s controversial and eccentric President Nayib Bukele announced in June last year that the country would be the first country in the world to use the cryptocurrency Bitcoin as its official currency. A few months later, in September, the project was rolled out.
The introduction of Bitcoin was met with a lot of criticism and offers, but the price of the cryptocurrency rose sharply in the following months. In November last year, the value reached its peak, when it was approximately 600,000 NOK. However, the price has fallen more than 70 percent since November.
The government did everything it could for this project, but it still failed, says economist Fernando Alvarez, who works at the University of Chicago, to The New York Times.
The price of Bitcoin was around 300,000 kroner in June, when the plan was announced. Now it is just over 200,000. El Salvador also kept the US dollar as its currency. The Bitcoin plan was justified, among other things, by the desire to attract investment.
“People are afraid to lose their money,” Edgardo Villalobos, coordinator of vendors at a market in the capital, San Salvador, told the newspaper.
At the same time, economic growth in El Salvador weakened, and the budget deficit rose. The loss resulting from the Bitcoin price drop is estimated at over NOK 600 million. According to Finance Minister Alejandro Zelaya, the price drop amounts to about 0.5 percent of the state budget, he writes CNBC.
Not many in El Salvador have used Bitcoin as a payment method. The authorities created a separate app for bitcoin transactions and paid $30 as bait to those who downloaded it. The app was called Chivo Wallet – Chivo means cool in El Salvador slang. Only 10 percent of those who downloaded the app continued to trade bitcoin with it after using up to $30 distributed.
Despite the drop in prices, many Bitcoin enthusiasts have not lost faith in the project.
“Given that we’re looking for financial freedom, we’re still on the right track,” Eric Gravengaard of Athena Bitcoin, the US-based company behind ATMs in El Salvador that uses Bitcoin, tells the New York Times.
The government of El Salvador has defended the introduction of cryptocurrency as an official method of payment, despite much criticism. The International Monetary Fund (IMF) regularly criticized the decision, asking the government, among other things, to retract the entire project.
There is no multilateral body that can force anyone to do anything. The finance minister said earlier this year that countries are sovereign and make sovereign decisions about their own policies.
President Najib Bukele remains very popular in El Salvador. More than 8 in 10 Salvadorans support the president, according to Polls. His popularity is partly due to his attack on the country’s notorious gangs. Earlier this year, he imposed a state of emergency, and more than 25,000 alleged gang members were arrested.
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