You have to hand it to 40-year-old El Salvadoran President Nayib Bukele for being bold. While other Latin American countries have been hobbled for generations with problematic economies, Bukele has made an all-in bet to launch El Salvador into the future.
This year, his government was the first in the world to declare a cryptocurrency as legal tender. Beginning on September 1st, El Salvadorans could download Chivo from the major app stores and purchase goods and services in Bitcoin and convert Bitcoin into dollars and vice versa. Bitcoin ATM machines were installed across San Salvador, the capitol.
Bukele said the move will attract foreign investment, empower the unbanked, and save citizens $400 million (a number in dispute) in transaction fees associated with El Salvadorans living in other countries sending money to family members back home.
We will not know if any of this will come to pass for some time. But he did succeed in putting his country among the top stories of virtually every major business news outlet.
Like every big bet, the risk of losing it all is high. The value of Bitcoin swings wildly and could wreak havoc on the struggling economy. Because cryptocurrencies are reported to be used by tax evaders, terrorists and other criminals to evade detection, other countries and financial institutions might decline to do business in El Salvador. The transition itself has been beset with problems. The app was taken offline several times after going live so developers could “improve the user experience” and fix glitches.
Some mainstream market watchers have scoffed. Moody’s Investor Service, for example, downgraded the country’s debt due to “a deterioration in the quality of policymaking.”
There is another perspective here, however: What does El Salvador have to lose? The economy was already in a shambles and the country has been negotiating an IMF loan to get it through to 2023. And while many investors remain deeply skeptical about the future of crypto, Starbucks, Home Depot, Microsoft, Tesla, and other respected enterprises are planning to accept Bitcoin in the near future, if they don’t already. Several US cities are racing to become crypto capitols.
While I remain skeptical about how all of this will turn out for El Salvador, I hope it works. Latin American economies continue to struggle largely because they are stuck in the past. Let’s at least give a nod to one that is looking to the future.
Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.