El Salvador's bitcoin experiment is looking like a disaster

News
By published

The country adopted bitcoin as legal tender in September, and now may default on its national debt.

An image of a fake Bitcoin with a laptop in the background displaying financial data
(Image credit: Roy Buri, Pixabay)

The country of El Salvador, which adopted bitcoin as legal tender late last year, is in serious danger of defaulting on its debt to international financiers within the next several years due to the ongoing collapse of the cryptocurrency market, as reported by El País and Bloomberg.

El Salvador's president, Nayib Bukele, is a noted enthusiast of cryptocurrencies, having been scheduled to appear at the Miami Bitcoin Conference last month before he abruptly cancelled. The country entered a state of emergency at the end of March over gang violence, and Bukele's presidency has been accused of authoritarian overreach, with the man himself even threatening to withhold meals from inmates in the country's prisons in retaliation for the violence.

While Bukele has a strong personal stake in cryptocurrency and the crypto scene, El Salvador has genuinely struggled with what currency it should use over the past twenty years. The country abandoned its own currency, and thus control over monetary policy, in 2001 in favor of the US dollar, seeking financial stability that the colón failed to provide. Many Salvadorans rely on remittances from relatives abroad to make ends meet, and those payments have to pass through notoriously predatory services to make it home.

Unfortunately, adopting bitcoin did not have a liberatory effect on the country's economy. The virtual wallet app rolled out by the government has proven unreliable, and the volatility that makes crypto such an attractive unregulated security left it a poor day-to-day currency.

Now that the crypto market is crashing, it's looking less and less likely that El Salvador will be able to make its next bond payment, defaulting on its national debt. This would prove disastrous for the country's economy and the government's ability to fulfil basic functions.

For his part, Bukele continues to double down on crypto, having bought 500 bitcoin (about $15.5 million at the time, now $14.1 million) on May 9. On the same day, the president tweeted about plans for a "Bitcoin City" to be built in the shadow of a volcano, with pictures of him admiring its gold-painted scale model.

The comical absurdity of Bukele showing off these plans for a sci-fi future city as he stares down an economic catastrophe of his own creation belies how hard this default will hit average Salvadorans. As with other areas of the crypto crash, it's going to be regular people who got suckered in, or were brought along against their will,  who will be left holding the bag.

Ted Litchfield
Associate Editor

Ted has been thinking about PC games and bothering anyone who would listen with his thoughts on them ever since he booted up his sister's copy of Neverwinter Nights on the family computer. He is obsessed with all things CRPG and CRPG-adjacent, but has also covered esports, modding, and rare game collecting. When he's not playing or writing about games, you can find Ted lifting weights on his back porch. You can follow Ted on Bluesky.