El Salvador is a country with a history of making poor financial decisions.
The International Monetary Fund thinks they are in the midst of another boneheaded decision that could do irreparable harm to the South American nation.
In September of 2021, President Nayib Bukele made the bold decision to make bitcoin legal tender, along with the U.S. dollar.
The IMF was against it then, and even more so now that the value of bitcoin has tanked since November. But the dip in bitcoin has only inspired Bukele to get even more involved. The young president has attached his political career and future to this one experiment with bitcoin, and he’s all in. Friday, he tweeted that he bought more bitcoin, $15 million worth. He called it “really cheap,” considering the value has fallen 50% in the past three months.
The IMF published a report and “stressed that there are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.”
The IMF urged authorities in El Salvador (Bukele) to peel back on the bitcoin obsession and remove it as legal money.
70% of citizens in El Salvador do not have access to traditional financial services. When the country moved to bitcoin, they launched a virtual wallet called Chivo for residents that allows them to have quick cross-border payments and no fees associated with those transfers.
Of course, fraud is rampant, and El Salvadorans are being preyed upon. Many have reported cases of identity theft, where hackers use their national ID number to open a Chivo e-wallet, then claim the free $30 worth of bitcoin offered by the government as an incentive to open a digital wallet.
Bottom line; this is a very slippery slope for a country where 96% of the GDP by 2026 will consist of public debt. Something that puts the country on an “unsustainable path,” according to the IMF.