December 2, 2022

El Salvador’s bitcoin experiment reaches a critical inflection point

After much anticipation, El Salvador delayed the offer of the world’s first bitcoin bond issuances amid heightened criticism and increased cryptocurrency volatility stemming from the Russia-Ukraine conflict. The $1 billion bond offer was meant to fund additional digital currency purchases and build a new city to use energy from a nearby volcano to mine crypto, Blockworks reported. Previous statements from the Finance Minister suggested that the issuance would come this week, but the paperwork has still not been presented to Congress, leaving the “volcano bonds” mired in uncertainty.

Public adoption of cryptocurrency has been spotty since it was made legal tender in September. In January, only 2% of remittances—a key component of the El Salvadoran economy—were sent using digital wallets, according to the central bank. Further, a Salvadoran Chamber of Commerce survey conducted in January and February found 86% of Salvadoran businesses contacted had never conducted a sale in bitcoin, reported Rest of the World.

President Nayib Bukele has pitched the adoption of bitcoin as a way to make El Salvador less dependent on the international financial system, reduce fees on sending remittances to the country, and boost investment in local businesses. However, the IMF has warned of cryptocurrencies’ potential negative effects on public finances, and JPMorgan downgraded El Salvador’s sovereign debt to the second-worst in Latin America.

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