Investing in crypto is a risky business – especially when you’re betting on a country’s future. It is, however, a gamble that the president of El Salvador wanted to make.
Nayib Bukele’s splurging on bitcoin has been praised by crypto advocates, but criticized in the traditional financial world.
The IMF was among its loudest critics. The International Monetary Fund has repeatedly urged El Salvador to abandon Bitcoin’s legal punishment – much to Bukele’s chagrin.
Here is a brief history of the dispute between the lender and the Central American nation.
March 2021: El Salvador seeks IMF funding
Days after Bukele’s ruling party won a huge election victory, a government official tells Reuters that El Salvador is seeking $ 1.3 billion in IMF funding.
Finance Minister Alejandro Zelaya says the deal would help take advantage of budget gaps and reduce costs associated with the country’s debt.
The IMF has made a previous emergency loan to El Salvador to help with the 2020 pandemic, which it has done for many other countries as well.
June 2021: Analysts warn that bitcoin will complicate the deal with IMF
Bukele plans to make bitcoin a legal tender in El Salvador.
Proponents of her case have been working to make the actual transcript of this statement available online.
However, the proposal raises concerns about the IMF deal.
Siobhan Morden, an analyst who leads Latin America on fixed-income strategy at Amherst Pierpoint Securities, says Bukele’s tweets about bitcoin. could interrupt the negotiation:
This may only reflect a long-term initiative or perhaps even just a striking PR tactic; however, it shows a lack of coordination with impulsive announcements that contradict a cohesive economic plan.
June 2021: Congress approves bitcoin law gets congressional approval
Congress approves Bukele’s proposal to adopt bitcoin through El Salvador.
The digital asset is ready to join the US dollar as a legal tender in 90 days. The bitcoin / dollar exchange rate will be set by the market.
La #BitcoinLaw was approved by a majority in the Salvadoran Congress.
62 out of 84 votes!
History! #Btc⁇
– Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
July 2021: IMF warns against using crypto as a legal tender
As El Salvador prepares to adopt bitcoin nationwide, the IMF warns countries against using cryptocurrencies as a legal tender. The lender says the move could bring financial stability and integrity.
Ricardo Castaneda, senior economist and coordinator for El Salvador at the Icefi think tank, says the FT that Bukelele’s plans could hamper relations with the IMF:
I don’t think they considered all the implications. It’s an experiment. It will be interesting to see if it works or not, but the implications, if it doesn’t work, are very serious.
September 2021: Bitcoin is adopted
El Salvador is becoming the first country in the world to adopt bitcoin as a legal tender.
The move means that citizens can use the cryptocurrency to make purchases, pay taxes and send remittances. A new digital payment method – Chivo’s electronic wallet – is also introduced. Citizens who download the app are promised a $ 30 reward.
The initial launch is marred by technical problems, protests and slow adoption. Critics fear the move will plunge the country into additional debt.
A day before the law goes into effect, Bukele is earning more bitcoin after a price-less he credits the IMF.
However, not all attempts to buy the dip are perfectly timed.
Missed the bottom *** in 7 minutes 😂
– Nayib Bukele 🇸🇻 (@nayibbukele) December 4, 2021
October 2021: Bitcoin presented as beneficial to IMF deal
The president of the central bank of El Salvador argues that adopting bitcoin will not create a barrier to negotiations with the IMF.
Instead, he says the benefits of the project will be the focus of the talks.
We see no risks. Possibly, additional risks. [Bitcoin will] become a payment system, a system for financial inclusion.
November 2021: Bukele plans ‘Bitcoin City’ and ‘Bitcoin Bond;’ the IMF issues another warning
At an event in the beach resort of Mizata, Bukele reveals plans to build the first “Bitcoin City” in the world.
Wearing his trademark baseball cap, the 40-year-old tells the crowd that the city will be built near Venezuela’s Conchagua volcano.
The volcano would provide geothermal power for the city and Bitcoin mining. Bukele says funding will come from a sales tax and the issuance of $ 1 billion in sovereign bonds backed by Bitcoin.
Half of the $ 1 billion in bonds will go to building energy and mining infrastructure. The other half will be invested in bitcoin.
The future. https://t.co/fFCWjcjFqm
– Nayib Bukele 🇸🇻 (@nayibbukele) November 22, 2021
The announcement comes on the same day as the IMF reveals its early results of a visit to El Salvador.
The statement advises the country to be careful with bitcoin:
Recently announced plans to use the proceeds of new sovereign bonds to invest in bitcoin, and the implications of trading more broadly in bitcoin, will require a very careful analysis of implications for, and potential risks to, financial stability.
Bukele points to the positives. He notes that the IMF’s assessment includes considerable praise from his government.
Interestingly, it was the IMF that destroyed all the opposition’s arguments:
• Excellent use of the pandemic.
• Transparency in the use of # COVID-19 finances.
• STRONG CRIME REDUCTION.
• Economy will grow 10% this year.Source: https://t.co/LoRQcKuDl7
– Nayib Bukele 🇸🇻 (@nayibbukele) November 23, 2021
January 2022: IMF urges El Salvador to remove bitcoin as legal tender
The IMF concludes a consultation with El Salvador urging the country to “get rid of it Bitcoin legal tender status.
In statement, the foundation’s directors emphasize the “major risks associated with the use of bitcoin for financial stability, financial integrity and consumer protection.” They also express concerns about the risks associated with issuing bitcoin-backed bonds.
In keeping with his image as a border manager, Bukele responds with a self.
https://t.co/s1F5kwOBEn pic.twitter.com/LD0I2dBHha
– Nayib Bukele 🇸🇻 (@nayibbukele) January 26, 2022
The president is not alone in mocking the IMF. Critics argue that the foundation’s actions are driven by a desire to to protect currencies, debts and monetary policies that it can control.
Others, however, argued that the IMF legally believes the project will be disastrous for El Salvador’s economy.
… About the economy of el salvador imploding
– ian bremmer (@ianbremmer) January 26, 2022
The IMF seems unlikely to provide funding until changes are made, but Buekele shows no signs of withdrawing. Their stalemate may continue until bitcoin reaches a major tipping point.
Source
Thomas Macaulay