Will Bitcoin Ruin El Salvador?

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Lizzie O’Leary: How long did you live in El Salvador?

Speaker 2: I started in 2018. I left during part of the pandemic. But was there most of 2018, 2019, and then 2020 and 2021? Kind of back and forth.

Lizzie O’Leary: A cat. Brigida is a reporter who covers Latin America. She lives in Honduras now, but was based in El Salvador and has been reporting on the country for years. And she was there when El Salvador became the first country to make Bitcoin legal tender last year.

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Speaker 2: The day that it was announced in June was very much a surprise.

Speaker 3: That is why next week I will send to Congress a bill that will make Bitcoin a legal tender in themselves.

Lizzie O’Leary: The country’s president, Nayib Bukele, announced his plan on June 7th via video to a conference of Bitcoin fans.

Speaker 2: And then from there, everything just went at full speed because the Legislative Assembly basically approved everything within a few days, and then they said within 90 days we’re going to make this happen.

Lizzie O’Leary: In those 90 days, El Salvador had to build its own Bitcoin wallet, install Bitcoin ATMs and sell the country’s population. On the idea of Bitcoin, an idea that had been brought there by ex-pat crypto enthusiasts and embraced by President McKinley all by September 7th, 2021.

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Speaker 2: And so the exact day there was a lot of build up to the day of being like, this is the day when everything is supposed to be working. But it was very clear that it was not all ready by that day. Many of the small businesses were not using the technology. You know, I asked many people and many businesses, at least a dozen, if they were accepting and they were not ready to accept the the payments.

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Lizzie O’Leary: More than six months after Bitcoin became legal tender, Anna-Kat says Salvadorans still haven’t embraced crypto.

Speaker 2: It wasn’t something that was sold to people little by little or explained to them why it was necessary. I think the general feeling was just there’s a lot of things going on in the country. Why do we need to do this?

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Lizzie O’Leary: And now the price of Bitcoin has dropped by roughly 37% since September. That means El Salvador’s holdings of the cryptocurrency have plummeted. Today on the show, El Salvador’s Bitcoin gamble. The country’s president is still all in. But could this lead to default? I’m Lizzie O’Leary and you’re listening to what next? TBD a show about technology, power and how the future will be determined. Stick with us.

Lizzie O’Leary: When the Salvadoran government made Bitcoin legal tender in September, it used the playbook from a small coastal town called El Sun, also known as Bitcoin Beach. In El something people, mostly expats, had been using Bitcoin for a few years. You could still pay in dollars, which is El Salvador’s main currency. But townspeople had their own app. Local businesses took Bitcoin. It’s one of the first places in the world you can use the.

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Speaker 2: Cryptocurrency Bitcoin.

Lizzie O’Leary: To pay for just about anything. International media, including us, did stories on it. The central government took that blueprint and tried to go national with it.

Speaker 2: So the government did develop an app which is called the Chivo wallet that can be downloaded on any smartphone. It works like many other crypto wallets when you’re making a purchase. The vendor also has this app, and when you’re making a purchase, there’s a code to scan with the price. One person, either the vendor or the buyer, creates the code with the price and the other person sends it. And that’s how you make a purchase. It’s easy if the technology is working and there is no error message, but sometimes there’s some glitches.

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Lizzie O’Leary: The government tried to get Salvadorans to adopt Bitcoin by offering a $30 incentive. If you downloaded the Chivo app and a cat wrote a story where she talked with lots of different Salvadorans about using the app and their Bitcoin experiences.

Speaker 2: So what we found was that the adoption rates are pretty low and that Bukele has not really been able to convince the average Salvadoran that they need to use this on a day to day basis. And it’s also not clear that that is even the point of this whole experiment to be using Bitcoin to buy a papoose or to buy a coffee. It’s not really clear that that is actually the point of the whole Bitcoin law because it’s not very practical. The technology is a bit wonky still, and as we’re now seeing with the crypto crash, the price of bitcoin can be very volatile and for many Salvadorans it just doesn’t make that much sense.

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Lizzie O’Leary: One argument that the government had made before the Bitcoin law was that it might bring people who are unbanked into the financial system. But Anna-Kat says it’s hard to know if that’s happened at all.

Speaker 2: I think at least anecdotally, I think the important thing to think about there is just that some of the issues in terms of, you know, some of the barriers to getting people, banks, I think, are some of the issues as well to people using bitcoin. For example, people living in very rural areas where they might, you know, not have great Internet access either. Or also, you know, some people who don’t have, you know, a smartphone. I think it’s complicated. I don’t know that we’ve seen data that shows for certain that unbanked people are now using Bitcoin regularly. And I think it’s just important to remember with any technology that there’s also some barriers.

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Lizzie O’Leary: The driving force in all of this is El Salvador’s president, Nayib Bukele. He’s 40. He’s a right wing populist with authoritarian tendencies and a love of bitcoin. His Twitter account is full of things like video of a bunch of bankers and crypto enthusiasts at a meeting in El Salvador screaming about Bitcoin.

Speaker 2: We would all love to get into the head of Nayib Bukele know exactly what he’s thinking. I will say that just as a reporter in El Salvador, it’s a bit challenging now to cover the Bukele administration because he’s no longer very transparent. At one point when he was mayor of San Salvador, he enjoyed speaking much more to the media. But now he basically only speaks to media that he knows will be very kind to him.

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Speaker 2: I think one important aspect to understand is El Salvador’s economic situation. Basically, El Salvador needs to pay back its its bonds. And it’s in a bit of a tricky situation because it has high debt, which has been growing under Bukele and his predecessors, not just under not just because of the Bitcoin law, but now basically the IMF. And other international organisations.

Speaker 2: Multilateral banks don’t really want to be lending money to El Salvador because of the risk, which has to do partially with this risky decision that that Bukele took with the Bitcoin law and partially with some of his other policies and the way that he’s been running the country and a lot of his authoritarian tendencies.

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Lizzie O’Leary: Unlike a lot of other countries, El Salvador doesn’t have its own currency. It uses the U.S. dollar. It has for 20 years. Although now, of course, people can use Bitcoin. This means the government can’t do what other countries sometimes do to get out of a sticky economic situation, which is print money. So Kelly seems to have doubled down on risky assets, both hoping that the value of Bitcoin will rise and make the country some money. And trying to offer an exotic bond to international buyers. The bond is supposed to raise $1,000,000,000 and be backed by Bitcoin. But so far it hasn’t happened.

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Speaker 2: The bond was supposed to be available for sale at the beginning of this year. It’s been pushed back now multiple times. Then it was February. Then it was March. It still hasn’t been available for sale, but basically people are able to buy into this Bitcoin bond and you know, probably, you know, the people who are going to be buying this are, you know, the typical Bitcoin crowd. But basically, the the money raised by this is supposed to go into building this Bitcoin city, which is going to be in eastern El Salvador and part of it’s going to go to that. And then part of it is going to go back into investing in Bitcoin with the idea that the value is going to go up in time and it’s going to be able to pay out to the investors.

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Speaker 2: And then the idea is also that. This is partially speculation, but also the finance minister has basically confirmed it that eventually this is a way for the government to take in some money, that they’re no longer able to get through the IMF and through other multilateral banks because they don’t want to lend the money anymore because of the risk.

Lizzie O’Leary: Yeah, the IMF has basically said, look, you guys are doing something we don’t approve of. So no.

Speaker 2: Basically.

Lizzie O’Leary: When you look at Barclays Twitter account, he’s still tweeting about Bitcoin, promoting a meeting of central bankers who are talking about crypto. Would you say he is still all in on Bitcoin.

Speaker 2: At least from his from his Twitter account? It seems so. I think it’s it’s important to note that I think it’s part of his personality. You know, he hasn’t really backtracked on anything since he’s become president. So I would be surprised if he backtracked on Bitcoin. It’s part of his personality, I would say.

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Lizzie O’Leary: Is it possible to know how much money El Salvador has lost in its Bitcoin holdings in the current crypto crash?

Speaker 2: So there are some estimations, but it is difficult to know exactly how much El Salvador has lost. So because he has tweeted when he has bought supposedly bitcoin with public funds, but all bitcoin has a public key. So Bitcoin actually is transparent. You should be able to see, you know, the public key where El Salvador has bought this Bitcoin and nobody has actually ever seen the public key.

Speaker 2: So we can’t actually be sure how much El Salvador is holding at any given time. We can’t actually be sure the exact price that it that El Salvador bought Bitcoin for. So it’s just a guess based on when Bukele said he bought it. And of course, since the price literally changes even throughout the day, it can be a little bit off. But there are some estimations and I know I think the latest that I saw was that El Salvador could have lost about $38 million.

Lizzie O’Leary: What does all of this mean for El Salvador’s economy and its, you know, ability to provide services for its citizens?

Speaker 2: It’s not good. I think. You know, it’s it’s already in a very fragile state. And so I think it just emphasizes that this has been a gamble. This is a gamble that they made. And he made it with public funds. And I think that that has been what so many journalists have been trying to focus on in covering this. And and I think many crypto followers and crypto enthusiasts haven’t really understood why many journalists are are just being so critical of this. But I think it’s just really important to remember it’s it’s public funds.

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Speaker 2: And so, you know, El Salvador has so many different problems going on. It’s currently under a state of exception after a spike in homicides, which was the result of a break in a gang truce between Bukele and the MZ 13 gang. High rates of poverty, inequality, lots of different issues in El Salvador.

Speaker 2: And I just think the crypto crash really drives home the point that many Salvadorans have been saying for a long time and the issue that they have with this law, which is why do we need this law when all these other things are happening? Why do we need this? And now it puts the country in a more precarious economic situation and makes it more difficult for them to spend money on what they need to be spending money on. You know, there’s been reports that they haven’t been able to pay some public employees over the past year and things like that to get a sense of how serious the economic problems are.

Lizzie O’Leary: There is also the possibility of debt default. El Salvador is supposed to make an $800 million bond payment in January, and it’s unclear if the country will be able to do that.

Lizzie O’Leary: When you were talking to economists for your story, did they raise the spectre that the wild fluctuations in Bitcoin value might mean that El Salvador couldn’t make its debt payments and defaults on its sovereign debt obligations?

Speaker 2: Yes, that is definitely a concern. I think they weren’t necessarily concerned in terms of the the fluctuation of the price, in terms of having bought the Bitcoin, but just the law in general and and the fact that the law has isolated the country from the traditional worldwide economic system. I think that was the bigger concern for them rather than the the fact that they had bought these Bitcoins with public funds. I do think that they were worried about that. But I think just the broader picture of what what the economists were worried about is just the law in general and the way that it isolates El Salvador.

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Lizzie O’Leary: I’m looking at this whole story. You have this Bitcoin experiment that was introduced by ex-pats and this idea of using a speculative investment to bring in outside money. And it’s hard to know if this feels like a, I don’t know, sort of neo colonialist experiment or if I’m going too far in saying that because obviously the president of the country is backing this as well. Like.

Speaker 2: How do you how do you make.

Lizzie O’Leary: Sense of how El Salvador became this Bitcoin magnet?

Speaker 2: Personally? Well, I’ve just noticed that there are now many people, many white people. I am a white person myself, of course. But people who have come to El Salvador very recently and are all of a sudden saying how the country should run its economy. Trying to explain the country to other people. I’ve met some of them and I know that some of them don’t even speak Spanish. I find it difficult to believe that some of them can understand the country without speaking the language. And so I do think that there are neo colonialist undertones to this experiment, and I do think that should be said. In the end, we should listen more to Salvadorans about their concerns and and what their what they’re saying about this.

Lizzie O’Leary: What happens to Salvadorans if this whole thing just blows up?

Speaker 2: That is really the question. That is that is the question. And that’s why so many people have been concerned about it. More poverty. They’re the people who are going to be suffering if they are either people who have decided to to gamble on this on their own, Salvadorans who have invested their little savings in it because someone convinced them that that was a good idea. And you have have just lost that personally or also collectively, you know, and facing an economic crisis collectively because the government can’t fulfill its its debt payments.

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Speaker 2: So it’s really the Salvadoran people who are going to be feeling the results of this. It’s not going to be the bitcoiners who have come down to El Salvador and who are living in the sun. They’re not going to be the ones who are going to be feeling the hurt and the pain from the crypto crash or from whatever fallout can happen.

Lizzie O’Leary: Anna-Kat Brigida, thank you so much for talking with me.

Speaker 2: Thank you so much for having me.

Lizzie O’Leary: Anna-Kat Brigida is a freelance reporter based in Honduras. That is it for the show today. TBD is produced by Evan Campbell. Our show is edited by Tori Bosch. Joanne Levine is the executive producer for what next? And Alicia montgomery is the vice president of audio for Slate. TBD is part of the larger what next family, and we’re also part of Future Tense Partnership of Slate, Arizona State University and New America. I want to recommend that you listen to Thursday’s episode of What Next? It’s a conversation with Nicole Hockley, whose son Dylan was murdered at Sandy Hook Elementary. He was six. Nicole talked with Mary Harris about how she and the other families took on the gun manufacturer that made the weapon that killed dylan and won. I’m Lizzie O’Leary. Thanks for listening.