El Salvador’s Long Winding Road To Financial Freedom - Bitfinex blog
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19 Sep El Salvador’s Long Winding Road To Financial Freedom

Posted at 15:46h in Education by

El Salvador’s President Nayib Bukele announced a bond buyback program to reassure investors and the nation’s creditors that it would not default on its sovereign debt. The government, along with crypto industry partners and stakeholders, are working together to pave the way for economic liberty.

El Salvador’s Bond Buyback Inspires Positive Sentiment

El Salvador has begun its sovereign debt repurchase program, which it announced over the summer, amidst rumours of default and economic crisis in the Central American nation. El Salvador will pay $910 for bonds maturing in 2023 and $540 for bonds maturing in 2025. It has also reassured investors that it would not default on its bonds. 

Each bond is worth a total of $800 million, although the repurchasing program will be capped at $360 million. This is an effort to bring confidence to the market. The buyback program is taking place from September 12th-20th, and funds are expected to be paid out on September 22nd, 2022.

Bukele shot to public attention last year after announcing his plan to make Bitcoin legal tender, launching a government-backed Bitcoin wallet called Chivo, and airdropping $30 of Bitcoin to each citizen in an effort to promote financial inclusion and encourage Bitcoin usage in El Salvador.

Bukele’s visionary plan to use Bitcoin as a means to pull the country up by its bootstraps has made him a legendary figure amongst the crypto community, and it seems that his vision is shared by a great number of Salvadorans, as well. Bukele is one of the most popular presidents in El Salvador’s history, with an approval rating of around 90%.

Bukele’s goal for El Salvador’s adoption of Bitcoin is to provide his citizens with access to transact in the wider global economy in a nation which is 70% unbanked and with an almost purely cash-based domestic economy. 

Geopolitically, Bitcoin adoption is also meant to help liberate the country from a sovereign debt crisis and dependence on the US Dollar, as decisions like setting inflation and interest rates take place in Washington, with Salvadorans having no say in what happens to the Dollar, which they use to earn, spend, and save.

Another objective of the Bitcoin law is to streamline the remittance process and reduce fees for Salvadorans sending and receiving funds domestically and abroad. El Salvador is one of the world’s largest remittance recipients, and Salvadorans pay over $400 million in fees annually to money transfer services like Western Union and Moneygram. 

Alternatively, by using a Chivo ATM, they can send funds home instantly and without fees with Bitcoin and Lightning Network. 50 Chivo ATMs have been installed in many US cities with large populations of Salvadoran residents, as well as all over El Salvador itself.

Aside from the Bitcoin law, Bukele has been pursuing more traditional solutions to help alleviate the nation’s financial woes, and this bond repurchasing program is one such example. Bukele is serious about achieving financial freedom and improving life for the average Salvadoran and is using every tool at his disposal. 

Perhaps the sentiment can be summed up best with this tweet by Milena Mayorga, El Salvador’s ambassador to the US:

“El Salvador is building the road to freedom and non-dependence on recipes for submission.

Welcome to the land of #LibertadEconómica!” 

Bitcoin’s Positive Impact On El Salvador’s Economy

No matter what your opinion is on the Bitcoin legal tender law, It is hard to argue with some of the positive effects that Bitcoin adoption and the Bitcoin law have had on the country. El Salvador has been in the headlines a lot and sparked considerable international interest.

Foreign investment and interest have increased dramatically, with many crypto startups and established crypto businesses flocking to the country to set up shop and take advantage of the friendly regulatory environment. 

In the first year, more than 50 Bitcoin companies have opened offices in El Salvador, with much more planning on establishing a presence in the country. This has created employment opportunities and brought a wide array of new services and business models to the Salvadoran economy. 

As for tourism, President Bukele has credited Bitcoin with saving the tourism industry in El Salvador after the pandemic, lockdowns, and international travel restrictions. Tourism saw a 30% increase in the wake of the Bitcoin law. 

1.1 million tourists visited El Salvador in the entire year of 2021, and in the first six months of 2022, there were already 1.2 million tourists who had visited El Salvador, an incredible 81% increase. This increase also took place while the Bitcoin market was in freefall and had lost more than 50% of its value since the 2021 ATH. 

The impact has been so great that Bukele announced a $203 million investment in Bitcoin Beach in El Zonte, which will include a shopping centre, water treatment, beach club and public parking in an effort to increase tourism. 

Social aid and NGOs have also been blessed with the influx of foreign interest and funding directly due to Bitcoin in El Salvador. Nonprofits like Bitcoin Beach, My First Bitcoin, Torogoz Dev and New Story have been able to receive donations, build housing for poor families, provide financial education, teach about Bitcoin, and train students and professionals in Bitcoin and Lightning Network technologies and development.  

El Salvador has also invested in infrastructure by installing over 200 Bitcoin ATMs, and is currently planning on mining Bitcoin with geothermal energy, is planning on issuing “Volcano Tokens”, on which Bitfinex will be the financial technology provider. It has also unveiled plans to build Bitcoin city, a special economic zone catered towards Bitcoiners and crypto investment, along with an international airport to facilitate transportation. 

El Salvador, like other Latin American nations, has a huge diaspora of citizens living abroad. The US alone has over 2 million Salvadoran residents, and many of them send money back home to family members in El Salvador. 

Remittances make up 23% of El Salvador’s GDP, and around $6.5 billion annually, with El Salvador ranking 4th for remittances worldwide. Salvadorans have begun to take advantage of Bitcoin to send and receive remittances, with 1.9% being sent through the Chivo wallet.

It is estimated that 4 million Salvadorans have downloaded the Chivo wallet app, and that’s a big deal in a small nation of only 6.5 million inhabitants. El Salvador’s Chivo wallet uses Lightning Network, the instant payments layer on top of Bitcoin, as has been seen by many as the first real world at scale test for the Lightning Network.

Since the launch of Chivo, around 20% of businesses have already started accepting Bitcoin, while only 25% of businesses currently accept credit/debit cards. It’s estimated that cash usage has dropped by 10%, and debit card usage has dropped by 11% since Bitcoin was introduced.

Crypto Businesses Working To Make The Bitcoin Law A Success

The Bukele government and Salvadoran citizens are not the only ones who want to see the country’s Bitcoin experiment succeed. Many prominent actors in the fledgling cryptocurrency industry have opened offices in El Salvador and have a vested interest in seeing it succeed as well. 

Many of the companies who have come to El Salvador are helping to work with the government and regulators to provide tax revenue, insights on regulation and compliance frameworks, and the installation of mission-critical infrastructure, which is needed to provide an array of new crypto-focused services. For many Salvadorans, Bitcoin is their first experience with digital payments and online shopping.

Mexican crypto exchange Bitso is the primary services provider for the government’s Chivo wallet. Bitgo, a US-based business that provides infrastructure for institutional custody of Bitcoin and crypto, is assisting the effort by providing the security technology for Chivo wallet. 

Well-known crypto businesses like Paxful, Strike, Ditobanx, Ibex Mercado, and Bitrefill have also joined the fray, providing exchange services, bill payments, and payment processing for local businesses, which are encouraged to accept Bitcoin payments under the law. 

Paxful has even gone so far as to create a Bitcoin educational centre called La Casa Del Bitcoin, which hosts meetups, community events, guest speakers and regular discussions about how to best assist Salvadorans in their journey towards societal Bitcoin adoption.

Athena Bitcoin has already installed over 200 Bitcoin ATMs and has plans to install 1,500 Bitcoin ATMs in total all around the country. Bitcoin ATMs have been one of the more popular and most accessible ways for Salvadoran citizens to convert their coins to cash and acquire Bitcoin with USD. 

Tesobe, the company behind the Open Bank Project & API3, which is a DAO that provides oracle data for smart contracts, has partnered with cross-chain self-custody protocol Qredo and Soveryn, a DeFi lending and trading services project based on the Bitcoin smart contracting sidechain RSK. 

The Tesobe, Qredo, and Soveryn partnership aims to provide open banking and decentralised custody and DeFi lending and trading services for neobank & fintech startups in El Salvador that wish to offer Bitcoin and crypto products. Tesobe assists banks, financial institutions, and regulators in deploying new services and blockchain integration.

These efforts from the many companies who have a stake in El Salvador’s successful Bitcoin adoption see the nation’s Bitcoin law as a real-world laboratory and country-sized sandbox to try out new business models, which can then be rolled out globally once they have been successfully battle-tested and dialled-in domestically in El Salvador.

A Beacon Of Light For Financial Inclusion Worldwide

Nayib Bukele’s Bitcoin-focused policies have received a lot of criticism from political opponents, entrenched legacy financial interests, and the mainstream press, but he remains very popular with Salvadoran citizens. El Salvador’s unorthodox and courageous Bitcoin experiment has also caught the eye of many developing nations in similar economic predicaments. 

In May of this year, El Salvador hosted representatives from 44 central banks in developing nations, keen to learn as much as possible from El Salvador’s firsthand experience in implementing Bitcoin as a legal tender and utilising it to boost financial inclusion. 

Attendees from nations like Ghana, Pakistan, Costa Rica, Jordan, and many more from around the world, came to learn about the possibilities afforded by Bitcoin and Lightning Network adoption. Many of these nations are already at high risk of a debt crisis.

Shortly after El Salvador’s Bitcoin legal tender law, the Central African Republic also made the decision to adopt Bitcoin as a legal tender currency. Is it the first of many dominoes to fall and to follow suit? 

Apart from El Salvador and The Central African Republic, the Portuguese autonomous island of Madeira and the semi-autonomous private city of Prospera, based on the Honduran island of Roatán, have since made similar announcements of adopting Bitcoin as legal tender.

Bitcoin could be the tool that empowers these developing nations and autonomous communities to climb their way out of risky sovereign debt and put them on a more equal footing with larger, wealthier nations. Bitcoin might be the path towards self-sovereignty on a nation-state level, with financial inclusion for all.

Salvadoran President Nayib Bukele seems to sincerely be concerned with improving the daily quality of life for the millions of Salvadorans he has brought along for the ride on his Bitcoin odyssey. For that, he should be admired and applauded. 

One thing the nocoiner press simply doesn’t understand or is more than happy to overlook is that every four years since its inception, Bitcoin reaches new all-time highs with every halving. While past performance is not indicative of future results, Bukele may still come out on the other end of this market cycle looking extremely prescient and competent.

History is made by those bold enough to take a principled stand against the status quo. Bukele has certainly secured his place in history, and his legacy may be discussed with reverence for generations to come.

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19 Sep El Salvador’s Long Winding Road To Financial Freedom

Posted at 15:38h in Education by

El Salvador’s President Nayib Bukele announced a bond buyback program to reassure investors and the beleaguered nation’s creditors that it would not default on its sovereign debt. Detractors have criticised Bukele for making Bitcoin legal tender and mismanaging the country’s finances.

Will Debt Buyback Reassure Skeptical Investors And Creditors?

El Salvador has begun its sovereign debt repurchase program, which it announced over the summer, amidst rumours of default and economic crisis in the Central American nation. El Salvador will pay $910 for bonds maturing in 2023 and $540 for bonds maturing in 2025. 

Each bond is worth a total of $800 million, although the repurchasing program will be capped at $360 million. This is an effort to reassure the market and salvage the nation’s bonds from their current junk status. The buyback program will take place from September 12th-20th, and funds are expected to be paid out on September 22nd, 2022.

Bukele became a very controversial public figure last year after announcing his plan to make Bitcoin legal tender, launching a government-backed Bitcoin wallet called Chivo, and airdropping $30 of Bitcoin to each citizen in an effort to promote financial inclusion and bootstrap Bitcoin usage in El Salvador.

Since the passing of the Bitcoin law a year ago, the Bitcoin market has declined significantly, leaving El Salvador with a $50+ million unrealised loss on its estimated $106 million in Bitcoin purchases. The country is believed to have purchased more than 2000 Bitcoins, many of which were purchased at the peak of the 2021 bull run, leaving the nation underwater on its holdings.

Bukele’s Bitcoin law has also flustered the IMF, which has issued stern warnings to El Salvador and pressured the nation to drop Bitcoin as legal tender due to concerns over the asset’s volatility. The Bitcoin law has also created tension in negotiations for future loans from the IMF, which the nation needs to stay solvent.

Despite the disapproval from the IMF and other international organisations that oppose the Bitcoin law, El Salvador’s government has doubled down, buying the dip as Bitcoin prices continued to plummet over the last six months. 

In response to negative headlines and criticism, government officials insist they are looking toward the future, long term, and that the Bitcoin law has already dramatically improved financial inclusion in a nation that was estimated to have as many as 70% of adult citizens without access to a bank account or financial services. Since the passage of the Bitcoin law, it is estimated that 46% of the population has downloaded the Chivo app.

Dollarisation, Debt, Dependance, And The Legacy Of Colonialism

El Salvador is the most densely populated nation in the Americas and has had a turbulent history, with a violent civil war which was fought in the 80s, which still has impacts that can be felt today. The nation has a severe problem with wealth inequality, with 36% of the population living in abject poverty, ruled over by a wealthy elite. 

While the armed conflict ended in 1992, since then, the country has struggled with high rates of violent crime, corruption, and the menace of gang culture and organised crime which was unintentionally exported to El Salvador by the US, which deported youth gang offenders in the 80s and 90s.

In 2001, the El Salvadoran economy became dollarised. El Salvador’s decision to dollarise came shortly after Ecuador’s dollarisation in 2000 and was an attempt to integrate El Salvador’s economy with the US economy and stimulate foreign investment. The plan didn’t play out as anticipated, however.

Instead of increasing foreign investment and prosperity, El Salvador’s growth stagnated as the nation ran into liquidity problems and never received the foreign investment they were aiming for. In fact, foreign investment declined and only accounted for 1.1% of GDP in the 15 years after dollarisation. 

The growing gang problems and sky-high crime rates also significantly offset the desired benefits of the absence of foreign exchange risk by scaring away foreign investors, who viewed the endemic corruption and criminal element as too risky for investment. 

Another negative impact of dollarisation was the loss of the control of monetary policy, as decisions like setting inflation and interest rates take place in Washington, with Salvadorans having no say in what happens to the Dollar which they use to earn, spend, and save.

El Salvador’s debt plight is due to predatory policies stemming from international lending bodies like the IMF and World Bank, which have continuously issued loans to developing nations with corrupt or irresponsible leadership and then taken possession of the natural resources and infrastructure of the country for foreign interests. 

Resources and infrastructure are often put up as collateral as mandatory conditions of the loans, and later seized by foreign corporations and businesses when the nations are unable to meet their debt obligations. 

These policies typically leave the citizenry impoverished and the nation stripped of wealth, which is utilised by the wealthier lending nations. China is currently facing criticism for pursuing similar policies in Africa.

Heroic Bukele? Bitcoin’s Impact On El Salvador’s Economy

Whether you love President Nayib Bukele or dislike him, it is hard to argue with some of the positive effects that Bitcoin adoption and the Bitcoin legal tender law have had on the country. El Salvador has been in the headlines a lot and sparked considerable international interest.

Foreign investment and investor interest have increased dramatically, with many crypto startups and established crypto businesses flocking to the country to set up shop and take advantage of the friendly regulatory environment. 

In the first year, almost 50 Bitcoin companies opened offices in El Salvador, with much more planning on establishing a presence in the country. This has created employment opportunities and brought a wide array of new services and business models to the Salvadoran economy. 

As for tourism, President Bukele has credited Bitcoin with saving the tourism industry in El Salvador after the pandemic, lockdowns, and international travel restrictions. Tourism saw a 30% increase in the wake of the Bitcoin law. 

1.1 million tourists visited El Salvador in the entire year of 2021, and in the first six months of 2022, there were already 1.2 million tourists which had visited El Salvador, an incredible 81% increase. This increase also took place while the Bitcoin market was in freefall and had lost more than 50% of its value since the 2021 ATH. 

The impact has been so great that Bukele announced a $203 million investment in Bitcoin Beach in El Zonte, which will include a shopping centre, water treatment, beach club and public parking in an effort to increase tourism. 

Social aid and NGOs have also been blessed with the influx of foreign interest and funding directly due to Bitcoin in El Salvador. Nonprofits like Bitcoin Beach, My First Bitcoin, Torogoz Dev and New Story have been able to receive donations, build housing for poor families, provide financial education, teach about Bitcoin, and train students and professionals in Bitcoin and Lightning Network technologies and development.  

El Salvador has also invested in infrastructure by installing over 200 Bitcoin ATMs, and is currently planning on mining Bitcoin with geothermal energy, is planning on issuing “Volcano Tokens” and building Bitcoin city, a special economic zone catered towards Bitcoiners and crypto investment, along with an international airport to facilitate transportation. 

El Salvador, like other Latin American nations, has a huge diaspora of citizens living abroad. The US alone has over 2 million Salvadoran residents, and many of them send money back home to family members in El Salvador. 

Remittances make up 23% of El Salvador’s GDP, and around $6.5 billion annually, with El Salvador ranking 4th for remittances worldwide. El Salvadorans have begun to take advantage of Bitcoin to send and receive remittances, with 1.9% being sent through the Chivo wallet. 

Has Bukele Opened Pandora’s Box For Public Debt Management?

“El Salvador is building the road to freedom and non-dependence on recipes for submission.

Welcome to the land of #LibertadEconómica!” 

– Milena Mayorga, Ambassador of El Salvador to the United States

Nayib Bukele’s Bitcoin-focused policies have received a lot of criticism from political opponents, entrenched legacy financial interests, and the mainstream press, but he remains very popular with Salvadoran citizens. El Salvador’s unorthodox and courageous Bitcoin experiment has also caught the eye of many developing nations in similar economic predicaments. 

In May of this year, El Salvador hosted representatives from 44 central banks in developing nations, keen to learn as much as possible from El Salvador’s firsthand experience in implementing Bitcoin as a legal tender and utilising it to boost financial inclusion. 

Attendees from nations like Ghana, Pakistan, Costa Rica, Jordan, and many more from around the world, came to learn about the possibilities afforded by Bitcoin and Lightning Network adoption. Many of these nations are already at high risk of a debt crisis.

Shortly after El Salvador’s Bitcoin legal tender law, the Central African Republic also made the decision to adopt Bitcoin as a legal tender currency. Is the first of many dominoes to fall and to follow suit? 

Apart from El Salvador and The Central African Republic, the Portuguese autonomous island of Madeira and the semi-autonomous private city of Prospera, based on the Honduran island of Roatán, have since made similar announcements of adopting Bitcoin as legal tender.

Bitcoin could be the tool that empowers these developing nations and autonomous communities to climb their way out of risky sovereign debt and put them on a more equal footing with larger, wealthier nations. Bitcoin might be the path towards self-sovereignty on a nation-state level, with financial inclusion for all.

Despite the negative press, Salvadoran President Nayib Bukele seems to sincerely be concerned with improving the daily quality of life for the millions of Salvadorans he has brought along for the ride on his Bitcoin odyssey. For that, he should be admired and applauded. 

One thing the nocoiner press simply doesn’t understand or is more than happy to overlook is that every four years since its inception, Bitcoin reaches new all-time highs with every halving. While past performance is not indicative of future results, Bukele may still come out on the other end of this market cycle looking extremely prescient and competent.

History is made by those bold enough to take a principled stand against the status quo. Successful or not, Bukele has certainly secured his place in history, and his legacy may be discussed with reverence for generations to come.

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