Since September 2021, El Salvador has been buying Bitcoin and investing in cryptocurrencies. However, the country’s massive gamble on cryptocurrencies seems to have failed in recent weeks. Amid the recent crypto market crash, the crypto has wiped off about a third of the government’s assets’ value.
Apart from increased debt repayment responsibilities and higher global borrowing rates, El Salvador is also dealing with the negative consequences of currency devaluation. The crypto crash, on the other hand, has closed certain possible exit routes from the crisis, such as the now-delayed bitcoin bond. At the Central American Institute for Fiscal Studies (ICEFI), Ricardo Castaneda, a senior economist and country coordinator for El Salvador and Honduras, said:
“The government’s financial problems are not because of bitcoin, but they have gotten worse because of bitcoin. For the government, bitcoin ceased to be a solution and has become part of the problem.”
El Salvador has become the first country to recognise bitcoin as legal tender. They also planned to build a crypto mining centre powered by volcanoes and issue the first sovereign bitcoin bond. The price of Bitcoin has plunged 45% since El Salvador formally recognised it as legal tender in the nation. The BTC has dropped 26% of its value since its high in May, as investors have transferred their funds to other assets.
According to the sources, El Salvador’s debt grew to $24.4 billion last December, compared to a total obligation of $19.8 billion in December 2019. The huge increase was caused by Bukele management’s high costs to deal with COVID-19 and the previous years’ economic losses.
