Foreign Policy magazine: 'Bitcoin Failed in El Salvador.' Is the Answer More Bitcoin?
More than 91 percent of Salvadorans want dollars, not bitcoins. The official Chivo payment system was unreliable at launch in September — the kiss of death for a new system. Users joined for the $30 signup bonus, spent it or cashed it out, then didn't use Chivo again. The system completely failed to check new users' photos, relying solely on their national identity card number and date of birth; massive identity fraud to steal signup bonuses ensued. Bitcoin's ridiculously volatile price was appreciated only by aspiring day traders. Large street protests against compulsory Bitcoin implementation continued through October. The government stopped promoting Chivo on radio, TV, and social media. Chivo buses and vans were seen with plastic taped over the company's logo.
Bukele's financial problems remain. El Salvador can't print its own dollars, so Bukele urgently needs to fund his heavy deficit spending. The International Monetary Fund has not lent the country the $1 billion Bukele asked for, and has indicated its strong concerns about the Bitcoin scheme... At the Latin American Bitcoin and Blockchain Conference on Nov. 20, Bukele came onstage to an animation of beaming down from a flying saucer and outlined his plans for Bitcoin City: a new charter city to be built from scratch, centered on bitcoin mining — and powered by a volcano. Bitcoin City would be paid for with the issuance of $1 billion in "volcano bonds," starting in mid-2022.
The 10-year volcano bonds would pay 6.5 percent annual interest. $500 million of the bond revenue would be used to buy bitcoins... Holding $100,000 in volcano bonds for five years would qualify investors for Salvadoran citizenship... Holders of El Salvador's existing sovereign debt were unimpressed. The volcano bonds would be a strictly worse investment than buying the country's existing bonds and hedging them with bitcoins. The existing bonds dropped from 75 cents on the dollar to a record low of 63.4 cents after the volcano bond announcement...
[T]he volcano bonds are Bukele's way to get Bitcoin holders' money into the Salvadoran economy and count it as dollars. Bukele will brazen all of this out as long as he can, periodically throwing new plans on the table as a distraction. If he can maintain power, then the Bitcoin users will discover that he's taken their money. If he can't maintain power, then his successor will have no love for his failed Bitcoin schemes. Either scenario ends with a lot of disappointed Bitcoin users — because a national economy really can't run on a volatile and manipulated speculative commodity that's unusable as a currency.
Both the Bitcoin users and Bukele seem to think the other is a sucker who they'll take for everything they've got. It's possible that both will lose.
More than 91 percent of Salvadorans want dollars, not bitcoins. The official Chivo payment system was unreliable at launch in September — the kiss of death for a new system. Users joined for the $30 signup bonus, spent it or cashed it out, then didn't use Chivo again. The system completely failed to check new users' photos, relying solely on their national identity card number and date of birth; massive identity fraud to steal signup bonuses ensued. Bitcoin's ridiculously volatile price was appreciated only by aspiring day traders. Large street protests against compulsory Bitcoin implementation continued through October. The government stopped promoting Chivo on radio, TV, and social media. Chivo buses and vans were seen with plastic taped over the company's logo.
Bukele's financial problems remain. El Salvador can't print its own dollars, so Bukele urgently needs to fund his heavy deficit spending. The International Monetary Fund has not lent the country the $1 billion Bukele asked for, and has indicated its strong concerns about the Bitcoin scheme... At the Latin American Bitcoin and Blockchain Conference on Nov. 20, Bukele came onstage to an animation of beaming down from a flying saucer and outlined his plans for Bitcoin City: a new charter city to be built from scratch, centered on bitcoin mining — and powered by a volcano. Bitcoin City would be paid for with the issuance of $1 billion in "volcano bonds," starting in mid-2022.
The 10-year volcano bonds would pay 6.5 percent annual interest. $500 million of the bond revenue would be used to buy bitcoins... Holding $100,000 in volcano bonds for five years would qualify investors for Salvadoran citizenship... Holders of El Salvador's existing sovereign debt were unimpressed. The volcano bonds would be a strictly worse investment than buying the country's existing bonds and hedging them with bitcoins. The existing bonds dropped from 75 cents on the dollar to a record low of 63.4 cents after the volcano bond announcement...
[T]he volcano bonds are Bukele's way to get Bitcoin holders' money into the Salvadoran economy and count it as dollars. Bukele will brazen all of this out as long as he can, periodically throwing new plans on the table as a distraction. If he can maintain power, then the Bitcoin users will discover that he's taken their money. If he can't maintain power, then his successor will have no love for his failed Bitcoin schemes. Either scenario ends with a lot of disappointed Bitcoin users — because a national economy really can't run on a volatile and manipulated speculative commodity that's unusable as a currency.
Both the Bitcoin users and Bukele seem to think the other is a sucker who they'll take for everything they've got. It's possible that both will lose.
