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El Salvador’s Bitcoin Experiment Is Looking Like a Disaster

The country of El Salvador, which adopted bitcoin as its legal tender late last year, is at serious risk of defaulting on its debt to international financiers in the coming years due to the continued collapse of the cryptocurrency market, as reported by The Country and Bloomberg.

Salvadoran President Nayib Bukele is a noted cryptocurrency enthusiast, having been programmed to appear at the Miami Bitcoin Conference last month before abruptly canceling. The country entered a state of emergency in late March due to gang violence, and Bukele’s presidency was accused of authoritarian exaggerationwith the man himself even threatening to withhold meals from inmates in the country’s prisons in retaliation for the violence.

While Bukele has a strong personal stake in cryptocurrencies and the crypto landscape, El Salvador has genuinely struggled with which currency it should use for the past twenty years. The country relinquished its own currency, and therefore control over monetary policy, in 2001 in favor of the US dollar, seeking the financial stability that the colon was unable to provide. Many Salvadorans depend on remittances from relatives abroad to survive, and those payments have to go through notoriously predatory services to get home.

Unfortunately, adopting bitcoin did not have a liberating effect on the country’s economy. The government-launched e-wallet app has proved unreliable, and the volatility that makes cryptocurrency such an attractive unregulated security has left it a poor everyday currency.

Now that the cryptocurrency market is collapsing, it seems less and less likely that El Salvador will be able to make its next bond payment by defaulting on its national debt. That would be disastrous for the country’s economy and the government’s ability to fulfill basic functions.

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For his part, Bukele continues to double in cryptocurrencies, having bought 500 bitcoins (about $15.5 million at the time, now $14.1 million) on May 9. The same day, the president tweeted about plans for a “Bitcoin City” to be built in the shadow of a volcano, with photos of him admiring his gold-painted model.

The comic absurdity of Bukele flaunting these plans for a future sci-fi city while facing an economic catastrophe of his own making belies how far this standard will hit average Salvadorans. As with other areas of the cryptocurrency crash, it will be the normal people who have been tricked, or who have been brought in against their will, who will be left holding the bag.

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