As a small Central American country with a population of less than 10 million, El Salvador's operation of establishing bitcoin as its legal tender last year stunned the market. Over the past year, the ups and downs of bitcoin prices have put the Salvadoran people on a roller coaster, but the Salvadoran president Nayib Bukele has unexpectedly gained a crowd of believers – many countries are trying to follow the path of El Salvador. What is the calculation of the President of El Salvador? Why did such a crazy move attract latecomers to follow suit?
The president speculates on money with national strength
Last June, at the 2021 Bitcoin Conference in Miami, USA, El Salvadoran President Nayib Bukle excitedly announced that bitcoin would be established as the country's legal tender, which means that bitcoin in El Salvador has acquired an important monetary feature – goods and services in Saldoba are allowed to be priced in bitcoin, citizens can also pay taxes on bitcoin, and bitcoin transactions cannot be rejected in any way.
El Salvador is a small coastal country in northern Central America with a land area of only 21,000 square kilometers (60% of Hainan Island), and its economy is dominated by agriculture and its industrial base is weak. When it comes to El Salvador, the most well-known labels are "volcano", "gangster" and "poor". In 2001, the Salvadoran monetary system collapsed, and the central bank stopped issuing the sovereign currency "Kolang" and used the US dollar as legal tender instead.
As soon as the news came out, the whole world was in an uproar. The World Bank and the International Monetary Fund have issued warnings to express concern that Fitch International, one of the three major international credit rating agencies, has downgraded El Salvador's rating to junk. As we all know, the price of Bitcoin is extremely uncertain and unpredictable. According to Al Jazeera, bitcoin is used as a store of value, but the price depends on transactions in international markets, which makes the country's financial markets very vulnerable to factors outside of sovereignty.
But this did not affect President Bukeer's interest in flipping money with national strength. On the day of the announcement of legal tenderization, Bukle took the lead in buying $10 million worth of bitcoin, and then added 10 times. A total of 2,301 bitcoins have been purchased, with a total holding value of more than $100 million, while El Salvador's GDP per capita last year was only $4,400.
A wave of betting on the operation of the national fortune
What made this president so crazy? Earlier, in an interview with a video column, Bucker talked about the reasons for the introduction of the Bitcoin Act: Three months before the Bitcoin Act was passed, US President Biden signed the $1.9 trillion economic stimulus bill passed by both houses of Congress. In the year from March 2020 to March 2021, the total amount of fiscal stimulus funds in the United States reached $5 trillion.
"The dollar's 'big water release' has hurt the Salvadoran economy." Bukkel believes that due to the loss of sovereign currency, the national economy is constrained by the US dollar, and it is difficult for El Salvador, which has lost its financial sovereignty, to adjust its economy. The use of Bitcoin as legal tender can promote the decoupling of the national economy from the US dollar. In addition, remittances abroad are an important pillar of the Salvadoran economy, accounting for about 20% of GDP. Bukkel noted that cryptocurrency remittances using P2P can save up to 30% in bank transfer fees.
"There are two types of decision-making, one that pays for historical issues and the other that is based on forward-thinking. Seeing the direction of the world and getting there first so that your people can benefit from it," Bukkel added, "we are already lagging behind in the existing financial system, why not accept a new system?" Why leave the future of monetary policy to someone else? They neither consult with you nor care about the impact [of those decisions] on your people. ”
"If 1% of the world's bitcoins were invested in El Salvador, it would drive GDP growth by 25%." Bukkel wrote on Twitter. Analysts pointed out that in a country that has long lost financial sovereignty, the legalization of bitcoin, although outrageous, is also understood by the people who support Bukkel as a breakthrough attempt to fight against the hegemony of the us dollar and regain financial independence.
Ladder or abyss?
Not surprisingly, the ups and downs of Bitcoin's price have put the people of El Salvador on a roller coaster. In April 2021, the price of Bitcoin first soared to an all-time high of $63,000, then fell below $30,000 in July, approached $70,000 again in November, and fell below $20,000 by June 2022. According to CoinDesk (Bitcoin News Resource Network), the total investment in El Salvador is about $103.9 million, and the actual value has shrunk to $46.6 million.
But some experts believe that Bukkel's calculation may not be here, he is not an "economist" but a "marketing master". It is reported that Bukle was born in a merchant family, and he studied advertising and marketing, and he knows the importance of "gimmicks" in the Internet age.
Last November, he proposed to create a "Bitcoin City" next to the Conchagua Volcano in eastern El Salvador. The entire city will be built in the shape of Bitcoin, with a public plaza in the shape of a Bitcoin symbol in the very center of the city and relying on "volcanic energy" to power the city and Bitcoin mining farms. The city's economy is built on Bitcoin, residents living here do not have to pay taxes, and it will become a bitcoin tax-free paradise and a virtual currency world financial center to achieve zero pollution emissions.
"He's nothing more than using Bitcoin to achieve his purpose and narrative." Some analysts pointed out that he deliberately created a kind of "spiritual totem" and enjoyed the gathering and harvesting of attention. Thanks to his "sword-walking bias", this small central American country that no one cares about is now dubbed the "country of bitcoin", and every time the president tweets to announce the purchase of bitcoin, it has attracted a large number of Western media reports and analysis. In addition, according to official government estimates, tourism in El Salvador has grown by 30% since last September, and more and more foreigners want to see what the "world's first country with Bitcoin as legal tender" looks like.
Fans are crowded
The legitimacy of the cryptocurrency, and the possibility of adopting it as the settlement currency for large-scale financial and economic transactions, has sparked a lot of controversy, and El Salvador has been rated as a "negative outlook" by mainstream rating agencies, but surprisingly, Bukkel's crazy move has attracted a large number of believers.
In April 2022, the Central African Republic passed a cryptocurrency regulation bill, becoming the second country in the world to adopt Bitcoin as an official currency. Previously, the fiat currency of Central Africa was the Central African Financial Cooperation Franc, which used a fixed exchange rate exchange system that was closely linked to the euro, and member countries had to deposit half of their foreign exchange reserves with the Bank of France to obtain a guarantee from the French Ministry of Finance.
Lower inflation comes at the cost of fiscal austerity and limited macroeconomic options. "The system left over from history seems to have built an insurmountable wall, so that Central Africa is stuck in the existing system and cannot make full use of the rich resources of the local area." Central African President Tuadra declared in an interview that the conventional economic form is "no longer an option" for Central Africa, and he hopes to build Africa's first tax-free "encryption center" in Central Africa in the future.
The West African Monetary Union, which is also part of the franc region, has also reached an agreement with France to introduce a number of currency reform measures, including changing the name of the CFA franc to Eco, transferring foreign exchange reserves out of France, and France is no longer represented on the central bank's board of directors.
"Many people are eager to get rid of the grip of mainstream strong currencies over the joints of the global economy." Al Jazeera said. Although in the short term, these countries do not have the necessary digital infrastructure and expertise to carry out this "curve overtaking" experiment, this road remains attractive to some countries that lack sovereign currencies or are deeply involved in inflation.
In May 2022, El Salvador hosted the annual meeting of the Alliance for Financial Inclusion (AFI), welcoming representatives from 32 central banks and 12 financial institutions from 44 countries. Participating countries including Nigeria, Rwanda, Egypt, Nepal, Pakistan, Haiti, Paraguay and other African, Asian and South American countries look forward to finding some answers during their trip to El Salvador. "Sow the seeds." Bukle tweeted after the summit, like a "pioneer" posture.
"In fact, currencies derive their strength from the power of the economies that export them." From this point of view, El Salvador and any other country that has followed in the footsteps of cryptocurrencies cannot be a strong supporter of Bitcoin, because the process of issuing Bitcoin is unfinished outside of these countries. "This is possible for great powers such as the United States and China, but these countries are still cautious about trading such currencies and are arranging to issue their own cryptocurrencies."
More importantly, these amazing concepts such as "Bitcoin country" and "crypto center" may win the attention of the moment and win short-term economic benefits, but they cannot solve the structural problems of a country's political and economic level, which is the key to determining a country's fate.
News and image sources: CNN, Fox News, The Washington Post, Al Jazeera, some of the images are from the Internet
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