El Salvador turned to Bitcoin to escape the global financial establishment. It's just gone deeper into a hole.
The first indication from El Salvador’s extremely online president Nayib Bukele that his country’s experiment with Bitcoin was not going well came last week, in typical fashion, on Twitter. But this time it was uncharacteristically subtle: He briefly removed the red laser eyes from his avi.on social media, had marked Bukele as a true believer.
, “There is no experiment where a currency was introduced with such strong incentives and it still failed.”As El Salvador’s government found out, the problem with cryptocurrency as legal tender is the aspirational but misleading premise of the word itself. A currency, as economists understand it, must fulfill three functions: It must be a relatively stable store of value, a commonly understood unit of account, and a widely accepted medium of exchange. Bitcoin fulfills none of these.
For some individuals, the crash was a devastating loss of personal wealth. For a country, the results are devastating on a much larger scale. El Salvador is on the verge of defaulting on its debts, which amount to close to 100 percent of its gross domestic product. This is exacerbated by the loss of value of the country’s Bitcoin holdings, which Bukele bragged he would trade with public funds on his phone while in the bathroom.
of COVID relief funds—likely but not proven because Bukele shut down the corruption probe and fired the attorney general investigating it.Even before the crash, El Salvador was a bad bet for foreign lenders. The Bitcoin gambit was in large part an attempt to circumvent the global financial system and appeal directly to the crypto community as a lender of last resort.
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