On June 10, El Salvador was down about $38.1 million on its bitcoin investment.
By Friday (June 17), that number had grown to $57.6 million.
That’s $19.5 million out of the Salvadoran treasury in the space of a week, thanks to a plummeting bitcoin amid the first deep freeze of what’s shaping up to look a lot like a Crypto Winter hit.
Of course, those numbers assume the $105 million outlay at an average price of about $46,000 cited by Bloomberg, with bitcoin at about $29,100 last week and $20,600 this week.
According to the news outlet ElSalvador.com, the government of President Nayib Bukele spent an estimated $375 million on the project to make bitcoin a legal tender in the country, if you include the cost of the Chivo Wallet’s $30-per-person bonus intended to incentivize widescale use of bitcoin.
The effort has failed dismally. Only 20% of the population are still using the wallet, and 20% of businesses are accepting the cryptocurrency, despite being legally required to do so.
This kind of story tracking declines in the bitcoin investment have become a weekly staple for a number of local newspapers and other outlets.
The trend finally drew a fairly reasonable response from Finance Minister Alejandro Zelaya, who said in a news conference that he has seen reports that say “El Salvador is being dragged down by a fiscal risk of $40 million.”
With more than a little sarcasm, he added, “Oh my God! Our General Budget of the Nation is almost $8 billion; $40 million does not even represent 0.5% of our budget.”
Besides, he argued, the “alleged loss of $40 million has not occurred, because we have not sold the coins, they have not [been] disposed of.”
That’s what more or less every bitcoin and cryptocurrency supporter is saying now.
Of course, there’s another side to the story, which is that the adoption of bitcoin as legal tender has butchered the country’s bond ratings. That has cost El Salvador quite a lot when borrowing money on the public markets, to say nothing of causing a standoff with the International Monetary Fund (IMF) that has delayed a loan the country needs to make an $800 million bond payment in January.
See also: Bitcoin’s Still a Major Sticking Point in Talks with IMF
Storm Clouds on the Horizon
With El Salvador finances already on shaky ground — public debt is 90% of gross domestic product, and there is little economic growth — as a global recession looms larger, the situation is risky enough that many Salvadorans prefer to keep their dollars in U.S. banks, said Frank Muci of the London School of Economics’ School of Public Policy, according to CryptoNoticias.
That leads to outflows that are putting pressure on local banks’ liquidity, he added.
“In dollarized countries such as El Salvador,” Muci said, “late payments by the government could trigger a bank run. Like other emerging markets, local banks, insurance companies and pension funds in El Salvador have a lot of national government debt and some foreign government debt on their balance sheets.”
Show Us the Money
ElSalvador.com complained that the Development Bank of El Salvador, Bandesal, has refused to share any information about how the millions of dollars dedicated to the implementation of the bitcoin law has been allocated.
“To date there is no information on how millions of dollars have been spent,” the outlet said. “Nor has it explained how the $150 million trust that the Legislative Assembly, with an official majority, approved in August 2021 to support operations with that cryptocurrency is managed. Bandesal has even declared that the operations for the purchase of these crypto assets are banking secret.”
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