The first country to legalize and then adopt bitcoin, El Salvador finds itself in an uncomfortable situation with the fall of cryptocurrency in recent days. As the country’s bonds which are denominated in dollars are in free fall, President Nayib Bukele is keen to issue bitcoin bonds now. Professor of applied economics at John Hopkins University, Steve Hanke has just said that the president’s obsession with bitcoin could cost the country’s economy dearly. Explanations.
A foolish and irresponsible policy
A few months ago, the President of El Salvador announced his intention toissue bitcoin-denominated bonds worth $ 1 billion. He explained that half of the amount was to be used to finance the construction of a city dedicated to cryptocurrency, while the other will allow the country to buy more bitcoins. This outing had the gift of exasperating Mr. Hanke who did not hesitate to assert that it was a senseless and irresponsible policy. He then pointed to the country’s frequent bitcoin purchases. He notably invited President Bukele to bet on bitcoin with his own money instead of taxpayer funds.
Despite these rather harsh criticisms, President Bukele continued his policy of pointing out that the country’s investment in bitcoin has gone well. For his part, Mr. Hanke, who has advised many emerging countries on monetary issues, has just issued a new warning in the face of the head of state’s stubbornness. Indeed, the government recently announced that it was sending about 20 bills to the legislature. that would give bitcoin bonds legal backing. Hankle said El Salvador’s economy could collapse if this measure becomes effective.
The influence of bitcoin on the situation of El Salvador bonds
Since the country’s president announced his intention to issue bitcoin bonds, El Salvador’s dollar-denominated bonds have been in trouble. Their yield rose from 6.3% at the time to more than 17% in November, according to data from Boerse Frankfurt. The country’s debt is therefore firmly anchored in the category of discounted debt. It means that El Salvador is likely to display a payment default in its security status.
However, the bitcoin bonds the country plans to issue could help get it out of the rut. Indeed, bitcoin remains an attractive prospect for investors, the asset having been the best performing of the last decade. The bitcoin-denominated bond so desired by President Bukele should also allow investors to bet on a potential surge in the price of cryptocurrency in the future.
As the price of bitcoin nears the $ 40,000 mark, the prospect of El Salvador being doubly exposed to cryptocurrency does not seem to frighten President Bukele. Like several analysts, the latter estimates that the assets will exceed 100,000 dollars in the short term.
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Luc Jose Adjinacou
Far from having dampened my enthusiasm, an unsuccessful investment in 2017 in some crypto only increased my enthusiasm. I therefore resolved to study and understand blockchain and its many uses and to relay information relating to this ecosystem with my pen.