El Salvador is Fearful of Clearing its Debts
People hailed El Salvador’s act of making Bitcoin as legal tender, as a bold move. True, the country was an impoverished one, but obviously heading for financial progress. The decision was announced in September 2021. However, the country’s own citizens are wondering about the wisdom of such a move, considering that Bitcoin has revealed huge losses in May 2022.
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Problems Confronting El Salvador
The country’s president, Nayib Bukele, who had been responsible for this decision, had spent over $100 million dollars, to set up the country’s Bitcoin fortune. However, Bitcoin’s double-digit losses have reduced this fortune to a mere $38 million. It has left the country plunged in debt, with no means of clearing it. In fact, President Bukele plans to buy another 500 BTC, to add to the country’s holding.
El Salvador had outsourced the Bitcoin deal to five companies. They were private companies. According to a survey by U. Today and a report by the National Bureau of Economic Research (NBER), however, around 80% of El Salvador’s companies had stayed away from Bitcoin.Obviously, therefore, BTC had failed to gain a hold in El Salvador. Thus, the market value of the existing holdings had reduced by almost a third. As a result, the IMF (International Monetary Fund) would refuse to offer financial help to the impoverished nation. The nation owes $800 million in bond payments, to be cleared by this year, or next year. Of course, the prevailing fear is that the country will have to default on its debt now, thanks to the fall of Bitcoin.
Another problem came to the fore with the launch of Chivo, the country’s digital wallet. This was supposed to be the major financial app for usage of crypto deals. However, the app was not on display at any of these stores – Google, Apple, or Huawei. Therefore, people found it very difficulty to use the country’s new currency. Admittedly, some technical bugs must be sorted out, before everything can proceed smoothly. It does not help that there is no central team, capable of offering technical education or support to users of Chivo. Tshe President had tried to resolve this issue, by having Chivo kiosks installed at plazas across the country. However, they did not prove to be of much benefit to the public. This led to El Salvador’s citizens themselves, criticizing their President’s moves regarding Bitcoin. Furthermore, the Bitcoin crash can force businesses to hike prices. In turn, customers will suffer losses in purchasing power.
El Salvador’s Solutions
The nation is now viewing Stablecoins with a favorable eye. Being linked to fiat currencies, they seem preferable as a mode of payment. The Government is also toying with the idea of producing its own Stablecoin. It would be a digitalized version of the colon, which had been its pre-dollarization currency.
El Salvador relies on the goodwill of international lenders and international loans, to get by. It is trying to set up a debt package with the IMF. It wants to ensure that no criminal activity, such as money laundering, would come into play. It wants to ensure the avoidance of macroeconomic instability.
