El Salvador produced large headlines last year when it became the first country in the world to adopt Bitcoin as legal currency.But now, after the collapse of almost 50% in the value of Bitcoin in recent days, the big question is whether El Salvador will be the first country in the world to go to bankruptcy because of a critpomoned.

Many economists say that is already happening.

"The adoption of Bitcoin by El Salvador has been an absolute disaster!" Nouriel Roubini tweeted, the American economist who became famous for predicting the crisis of 2008."The country is now effectively in bankruptcy".

The International Monetary Fund (IMF), which El Salvador is asking for emergency loans, urged the country on January 25 to leave Bitcoin as legal tender."There are great risks associated with the use of Bitcoin for financial stability, financial integrity and consumer protection" in the country, said the IMF.

The populist president of El Salvador, Nayib Bukele, 40, announced for the first time his decision to adopt Bitcoin at a conference in Miami in June last year.The Congress controlled by Bukele approved shortly after the "Bitcoin Law", which includes a clause that forces all Salvadorans to accept payments in that cryptocurrency, although that part of the law was never implemented.

In recent days, when the price of Bitcoin fell from more than $ 61,000 in October to $ 35,000 on January 23, Bukele raised the bet and bought another $ 15 million in Bitcoins.Then he tweeted in English, challenging, that "some boys are selling very cheap".

But the joke did not cause economists much grace.

"All this experiment has already cost $ 200 million in money that practically does not contribute anything to the economic development of the country," Álvaro Trigueros, director of Economic Studies of Fusades, one of the best -known study centers in the country told me."It's lost money".

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The El Salvador government now lacks funds to pay $ 1.4 billion internal and external debts, the country risk has shot, and the price of El Salvador bonds has collapsed.

"Now we are in a high -risk situation, in which the economy could collapse," Trigueros told me.

The adoption of Bitcoin as legal currency in El Salvador was already in trouble before the recent drop in the price of cryptocurrency.

Only 10% of Salvadoran companies say they have made at least one transaction in Bitcoins, according to a Fusades survey.Many Salvadorans used the $ 30 dollars in Bitcoins that the government gave them at the end of last year to register on the official "Wallet Chivo" platform, and have not used cryptocurrency since then.

A separate survey of 480 merchants made by the El Salvador Chamber of Commerce found that only 1% of the total value of its sales had been made with Bitcoins.The US dollar, the legal currency of El Salvador, is still used for practically all commercial transactions.

"The Wallet goat has had many technical problems," Jorge Hasbún, president of the El Salvador Chamber of Commerce and Industry, told me."Some people transferred their account, and the money was lost on the way".

The combination of the technical problems of the "Wallet Chivo" and the volatility of Bitcoin has made more and more Salvadorans distrust the cryptocurrency, Hasbún added.

My opinion: there is nothing wrong with a country like El Salvador to allow bitcoins for some transactions such as family remittances from abroad, to help people avoid bank commissions.But Bukele went to the hand when betting a large amount of funds from the State to a currency as volatile as the bitcoin.

My suspicion has always been that Bukele launched his "Bitcoin Law" to project the image of a young and modern leader, and to divert public attention from criticism for his increasingly authoritarian form of government.Now, the country is paying a high cost for its public relations strategy.

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This story was originally posted on January 26, 2022 3:31 pm.