Salvadorans are hunkering down

published on Friday, May 27, 2022 at 09:23

The dollar value of bitcoin has shrunk by almost half since it acquired in El Salvador in September 2021, like the dollar, the status of legal tender: Salvadorans have become accustomed to hunkering down under the storm.

The law still obliges merchants to accept bitcoin as payment currency, but now the cryptocurrency burns their fingers and most rush to change it into greenbacks, like José Fredy Landaverde, who runs a clothing store in the capital.

The function of immediate exchange in dollars exists on the virtual “wallet”, called Chivo, created by the government of President Nayib Bukele to allow operations in cryptocurrency: merchants must accept payments in bitcoin, but they can not get rid of immediately.

“When the customer pays us in bitcoin, we immediately convert it into dollars,” the 44-year-old clothing merchant told AFP. If bitcoin goes up, it will do the opposite, he assures.

In September 2021, when El Salvador was the first country in the world to adopt bitcoin, the cryptocurrency was trading at around $44,000, before soaring to an all-time high of $66,000 two months later. Since the record, the fall is 57%.

– Euphoria –

In the euphoria of the rise, President Bukele had built a public veterinary hospital and announced with great fanfare a Bitcoin City project near the Conchagua volcano which would provide him with renewable and inexhaustible energy.

The tumble of the cryptocurrency falls badly: the negotiation with the IMF of a loan of 1.3 billion dollars is bogged down for El Salvador, whose public debt is around 90% of GDP.

At the beginning of May, the rating agency Moody’s downgraded the rating of Salvadoran debt.

In the center of the capital San Salvador, businesses have removed signs that proclaim “bitcoin accepted” and employees confirm the drop in cryptocurrency transactions. Juan Carlos Canales, another clothing salesman goes so far as to say that he gave up bitcoin because “few customers” use it.

“It’s not common for people to use it. But we have the option ready for those who want it,” says Jonathan Valdez, a waiter in a cafe in the capital.

The cryptocurrency market is in “full turbulence”, Maximiliano Hinz, an Argentinian who heads the virtual currency platform Binance, told Panama.

But “normally, when there is a downward correction, then there is a rebound: when bitcoin hit $28,000, there was a historic peak in purchases” of the cryptocurrency, he underlines. .

– Cryptocurrency reserves –

Thus, on May 10, President Bukele announced that he was taking advantage of the fall in the bitcoin to buy 500 of them, which went to swell the country’s cryptocurrency reserves, now at 2,301 bitcoins, each currently worth around 30,000 dollars.

José Fredy Landaverde, who says he has gone from an average of ten bitcoin sales to just four a day, is confident that cryptocurrency will return to favor with consumers, in a country where only 23% of the population has a bank account.

Former Central Bank President Carlos Acevedo is more pessimistic and, for him, the prospect of issuing cryptocurrency debt is remote, even if the fall of bitcoin is not so much El Salvador’s problem as “the low growth and insecurity”.

In addition, the “tumble” of bitcoin occurs when its use is not massive in the country, which is “an advantage”, underlines the former president of the Central Bank.

Since 2001, the annual growth of the economy of El Salvador has been 2 to 3%. After record post-pandemic growth of 10.3% last year according to the IMF, it should fall this year to 3.2%, the Central Bank predicts.

However, the country “is not going to default on payment”, assures Carlos Acevedo. President Bukele could “lower the liquidity reserves of the financial system so that banks can buy more public debt” or even “nationalize” pension funds, he suggests, among other possible expedients.


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