The move was met with heavy publicity, drawing praise from crypto enthusiasts who saw El Salvador as a prime use case for the expansion of Bitcoin. It also attracted criticism from Salvadorians citizens, economists, and world banks, who worried that the volatility of bitcoin would further destabilize El Salvador’s economy.
The Salvadoran government, led by Bukele, has purchased roughly 2,300 BTC since 2021. The world watched closely over the next year as the price of bitcoin dipped and the value of El Salvador’s investment in the currency steeply declined. By June 2022, the government’s bitcoin were worth only half of what they paid for them. Further, economic surveys found that the cryptocurrency was not widely used, largely due to a lack of digital literacy.
However, the Bitcoin experiment has not weakened Bukele’s popularity. As one of the youngest and most well-known leaders in Latin America, he has consistently high approval ratings. Bukele announced that he will run for reelection in 2024 among controversy that a second run would violate the country’s constitution.
Personal history
Nayib Bukele was born in 1981 in San Salvador, the capital city of El Salvador. His father was a respected businessman who founded companies in the textile industry, media, commerce, and pharmaceuticals. Bukele studied law at Central American University but did not graduate, instead choosing to work at his father’s public relations firm.
From 2012-2015, Bukele served as mayor of Nuevo Cuscatlán, a municipality in the southwest of the country. He oversaw the expansion of public works programs, including scholarships for all youths with a GPA over 3.5 and a monthly food basket for elderly adults. The area also saw a drop in the homicide rate during his tenure.
Bukele was elected mayor of San Salvador in 2015. He began a revitalization of the city by relocating street vendors, building a market, and creating San Salvador’s first municipal library.
Bukele was expelled from his political party, the Farabundo Martí National Liberation Front (FMLN), in 2017, accused by party leaders of promoting internal division, verbally and physically attacking another party member, and heavily criticizing the incoming FMLN president.
Presidency
After his expulsion from FMLN, Bukele established his own political party, Nuevas Ideas (NI). He ran for the presidency as an independent who rejected the traditional political system.
Bukele was popular among voters - he was social media-savvy, personable, and accessible, giving frequent interviews to the press. He also had a solid track record from his mayorships, helping make his jurisdictions safer and cleaner while expanding public resources. In February 2019, at age 37, he won the presidency with 53% of the vote.
Bukele has garnered praise for his handling of the COVID-19 pandemic, decreasing the rate of gang violence, continuously lowering gas prices, increasing the minimum wage, and for his public works projects.
However, he has been criticized internationally for various authoritarian actions, including firing Supreme Court judges and replacing them with appointees who would allow him to run for a second term despite a constitutional ban, and threatening members of Congress with security forces.
Bukele used the foreign commentary to unite Salvadorians against a common enemy. “Ok boomers,” he tweeted to members of the US Senate Foreign Relations Committee. “You have 0 jurisdiction on a sovereign and independent nation. We are not your colony.”
Role in the cryptocurrency community
Many in the crypto community believed that El Salvador would benefit from the adoption of Bitcoin. While remittances (money sent as gifts) make up 25% of the country’s GDP, 70% of the population doesn’t have a bank account. This forces residents to use non-bank money transfer services such as Western Union (or equivalent) and potentially pay hefty fees to send and receive their money in US Dollars, the country’s national currency.
Bitcoin community in El Salvador
El Salvador was already known to Bitcoin evangelists due to “Bitcoin Beach” in the town of El Zonte. The became an area where members of the Bitcoin community gathered, and businesses and markets transacted in bitcoin.
Bukele spent months meeting with leaders in the crypto space, including Jack Mallers, the creator of the Strike app, to understand how to enable Bitcoin’s Lightning Network to be used for remittances in El Salvador. The president began to see Bitcoin as El Salvador’s financial future, with the country being uniquely positioned to make bitcoin legal tender.
“El Salvador has not been the country that’s recognized to be the first in innovation,” Bukele said on a podcast. “But why not this time?”
Bitcoin Law
In June 2021, at the Bitcoin conference in Miami, Bukele announced that El Salvador would adopt Bitcoin as legal tender. The Bitcoin Law was passed on June 9 with a majority vote, making El Salvador the first nation with a cryptocurrency as an official currency.
“This is just exercising our sovereign right to adopt legal tenders, like we adopted the U.S. dollar in the year 2001,” Bukele said in an interview. “In 2001, it was probably done for the benefits of the banks, and this decision is done for the benefits of the people.”
After the announcement, El Salvador distributed $30 worth of bitcoin to all its citizens via the government-backed digital wallet, Chivo app, and installed 200 Bitcoin ATMs around the country.
The day before the law came into effect in September 2021, Bukele announced the government had bought its first 400 bitcoin.
Reaction
The move was met with massive media attention as well as concerns from international organizations. The World Bank declined to assist El Salvador with implementation, expressing reservations about Bitcoin’s transparency and the environmental impacts of bitcoin mining.
The rollout also faced significant hurdles. Chivo was not available on the Apple Store and Huawei's AppGallery, and its servers had to be temporarily pulled offline because they were not able to keep up with the number of registrations.
In addition to technical difficulties, over 1000 protestors gathered outside the country’s supreme court over concerns of lack of transparency around the Bitcoin Law and Chivo, as well as the use of tax dollars to purchase bitcoin.
Further, on its first day as legal tender, the price of bitcoin crashed from $52,000 to less than $43,000, adding fuel to the crowd that was against this move in the first place.
Impact
Bukele’s government continued to buy bitcoin, spending roughly $85 million between September 2021 and January 2022. The price of bitcoin dropped precipitously in the months after and by fall of 2022, it is estimated that El Salvador has lost around $60 million on its bitcoin investments.
The IMF (International Monetary Fund) urged El Salvador to stop using bitcoin in early 2022, stating significant risks for financial stability, consumer protection, and market integrity, as well as fiscal liabilities.
However, a year after the adoption of Bitcoin, economic surveys found that the cryptocurrency was not widely used. Only an estimated 20% of businesses accepted payment in bitcoin and less than a quarter of Salvadorians had made a purchase with the currency. According to the Central Reserve Bank, bitcoin was only used in 1.9% of remittance payments between September 2021 and April 2022. In a university survey, 71% of respondents said the Bitcoin Law did nothing to improve their finances.
Bukele and the future of Bitcoin in El Salvador
Bukele has stayed resilient on the move to make Bitcoin legal tender and the use public funds to buy bitcoin. In November 2022, he tweeted that the government would start buying one bitcoin a day, after not buying any crypto for six months. He also said that the government has not lost money on its bitcoin investment because it has not sold any bitcoin. “Stop drinking the elites’ Kool-Aid and take a look at the facts,” he wrote.
Bukele’s bitcoin push has not dampened his popularity among his constituents. He had an 87% approval rating at the end of 2022, the highest of any Salvadorian president while in office.
Bitcoin mining
In September 2021, Bukele released a video via his Twitter showing a geothermal facility with Bitcoin mining machines operating on a Salvadorian volcano.
Earlier that year, Bukele invited bitcoin miners to come to El Salvador to use the volcano’s energy to mine bitcoin with 100% renewable energy. The geothermal energy generated would then be used to provide electricity to the country.
Nayib Bukele essentials
- Nayib Bukele is the president of El Salvador and led the push to make Bitcoin legal tender in June 2021.
- The move was met with massive media attention and mixed reactions, including enthusiasm in the crypto community and concern from international economists.
- Bukele has consistently high approval ratings despite a shaky rollout of the currency, declining crypto investments, and lack of widespread bitcoin usage.