El Salvador’s president splashed out millions of dollars of public money on bitcoin and announced plans to build a $1.4 billion Bitcoin City – then the market collapsed.
El Salvador’s president Nayib Bukele has been criticised for investing hundreds of millions of public money on bitcoin.
Last year, the world leader made the decision to make the cryptocurrency legal tender. He purchased nearly $US100 million ($145 million) in the digital currency and announced plans to build a bitcoin city.
The head of state hoped to raise the funds for the new city by selling $US1 billion ($1.4 billion) of bitcoin-backed bonds. The community would be built at the base of a volcano that would provide geothermal energy and power a bitcoin mining industry.
However, the country’s 2300 bitcoins have not risen in value since it was bought and none have been sold anywhere making profit.
President Bukele poured an additional $US200 million ($290 million) into a subsidised bitcoin wallet app, called Chivo. The app has been expensive to roll out and run.
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Local economist Tatiana Marroqui is concerned about the money being spent and said the project is risky.
“We don’t know exactly when or with what money they’ve bought bitcoins,” Ms Marroqui said in the documentary El Salvador’s Big Bitcoin Gamble, available to stream on Flash.
“There are lots of questions about how that money is being spent.
“I know the country’s finances pretty well, and there is not even the smallest margin for publicly funded projects which are risky. The needs of the population are huge.
“Building a Bitcoin City is one of the most under-developed areas in the country would be like creating a billionaire’s oasis in the middle of a desert of poverty.
“If he builds it, it’s going to be at the expense of huge sacrifices from the Salvadoran people.”
In January, the International Monetary Fund (IMF) urged El Salvador to remove bitcoin as legal tender, highlighting the “large risks associated with the use of Bitcoin on financial stability, financial integrity and consumer protection,” according to the BBC.
Despite criticisms and bitcoin’s falling value, the government’s Tourism Minister Morena Valdez said citizens trust President Bukele’s decisions.
“We know that each of the president’s decisions are made in the right moment,” Ms Valdez said.
“People have a lot of trust in his decisions and in how the country’s economy is going.”
Other countries are reportedly considering El Salvador’s move.
The Central African Republic made Bitcoin its legal tender earlier this year.
The country’s president, Faustin-Archange Touadéra, announced the news on Twitter, describing the digital currency as “universal money”.
Bitcoin and other digital tokens have suffered an eye-watering crash this year that has wiped trillions of dollars off the value of the cryptocurrency market.
On Sunday, bitcoin dipped as low as $US17,601.58 (A$25,300), a whopping 74 per cent fall in value since its all-time high in November when it nearly hit US$69,000 ($99,000) per coin.
The original and most widely traded cryptocurrency was sitting at just under $US20,500 ($29,800) at the time of writing.
Over the weekend, President Bukele sought to reassure his citizens.
“I see that some people are worried or anxious about the bitcoin market price,” he wrote on Twitter.
“My advice: stop looking at the graph and enjoy life. If you invested in #BTC your investment is safe and its value will immensely grow after the bear market. Patience is the key.”