Bitcoin Reaches Two Years as Legal Tender in El Salvador

Although bitcoin reaches two years as a legal trend in El Salvador, the population has not widely embraced this cryptocurrency.

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In September 2021, this nation became the first in the world to establish cryptocurrency as legal tender, alongside the U.S. dollar. Over US$250 million has been invested in this project, which stands as President Nayib Bukele's flagship economic endeavor.

Two Years with Little Data

The Bukele administration allocated US$150 million to a trust for converting cryptocurrency into dollars, spent at least US$107 million to acquire 2,381 bitcoins, and provided a US$30 bonus to those who downloaded the government's digital wallet.

Information on the use of these resources has been kept confidential by public institutions, with Bukele's social media posts being the only official source.

In mid-November 2022, Bukele announced that his administration would start purchasing one bitcoin daily. As of now, 295 days have passed, and authorities have not confirmed any such purchases. Salvadoran bitcoin reserves originally cost around US$107 million but are currently valued at approximately US$61.3 million due to fluctuations in cryptocurrency prices.

In 2022, it was also expected that the Bukele administration would issue bitcoin bonds, known as "Volcano Bonds," worth US$1 billion to finance the construction of Bitcoin City in the eastern part of the country. However, this financial move did not materialize.

Bitcoin for Campaign Financing?

In 2024, El Salvador will hold general elections, and despite constitutional objections, Bukele will seek immediate re-election for another five years.

According to Eduardo Escobar, director of Citizens' Action, the country is once again heading into elections "with open doors and windows for organized crime, public funds, and foreign governments to finance electoral campaigns."

"We have been highlighting the deficiencies in oversight by both the Supreme Electoral Tribunal and the Court of Auditors," he stated, adding that bitcoin "is allowed for campaign financing" but can also serve as a tool to obscure the source of funding.

The adoption of this cryptocurrency "has only increased the opacity in the management of public affairs," Escobar said, adding that bitcoin has been used to promote an image of a modern El Salvador, which is mostly propaganda.

Some Economic Figures

According to the Central Reserve Bank (BCR), El Salvador's economy grew by 10.3 percent in 2021. However, economists attribute this growth to the post-COVID-19 economic recovery rather than the adoption of Bitcoin.

In 2022, the country's economy expanded by 2.6 percent, slightly below the expected 2.8 percent, and it is projected to close 2023 with economic growth between 2 and 3 percent, among the lowest in the region.

The number of jobs generated by the adoption of Bitcoin, as well as its contribution to foreign and private investment, remains unknown. There are at least 97 registered service providers, including recognized exchange houses.

On the other hand, El Salvador experienced a 28 percent decline in remittance receipts through cryptocurrency wallets between January and July 2023, compared to the same period in 2022.