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El Salvador has lost over $60 million on bitcoin experiment

According to many critics and Salvadorans, the project is not living up to the promises of President Nayib Bukele

October 14, 2022 5:51am

Updated: October 14, 2022 7:42pm

El Salvador has lost more than $60 million on its bitcoin experiment more than a year after the Central American nation became the first country in the world to adopt the digital currency as legal tender.

According to many critics and Salvadorans, the project is not living up to the promises of President Nayib Bukele.

“I don’t think anything has changed, except that the country is more recognized than before, but the economic life of Salvadorans remains the same or worse than a few years ago,” said Edgardo Acevedo, a development engineer working in the capital city of San Salvador, told CNBC. 

In September of last year, Bukele made bitcoin legal tender in the Central American country, promising that it would revolutionize the way people send, receive, and spend money and bring about economic growth.

Along with the new digital currency, Bukele announced several other crypto-related projects, including Bitcoin City—a city at the skirts of the Conchagua volcano designed as a bitcoin—and Bitcoin bonds.

After investing more than $325 million in bitcoin, the digital currency has lost more than 60% of its value, costing the country over $60 million in losses and declining economic growth.

The large amount of money that Bukele’s government has spent on bitcoin has affected the country’s debt-to-GDP ratio, raising it to almost 87% and generating fears that El Salvador will not be able to pay its upcoming debts.

El Salvador is facing several multilateral and domestic debts, including an $800 million Eurobond that matures in January 2023.

The International Monetary Fund (IMF), the World Bank, and JP Morgan, along with other financial and economic institutions, have warned that El Salvador is on an unsustainable path.

According to data from Bloomberg Economics, El Salvador ranks first among emerging market countries that are vulnerable to debt default.

Rating agencies, such as Fitch and Moody’s, have downgraded El Salvador’s credit score over its bitcoin investments, claiming that Bukele’s bitcoin holdings are adding to the country’s risk portfolio and subjecting the country to extreme volatility.