In a recent announcement by the El Salvadorian government, the government has stated that the Bitcoin adoption law is going as smoothly as planned.
As per the tourism minister of El Salvador, Morena Valdez, a rise in tourism by 30% was seen since the law was passed way back in September 2021. The tourism department has recorded a tourist count of a whopping 1.4 million which is way more than the expected 1.1 million. Surprisingly, Americans amount for 60% of this footfall considering the USA’s displeasure about El Salvador’s Bitcoin legal tender law. Further, the government seems to be boasting about a double-digit increase in GDP in 2021.
So, it’s a win-win scenario, right? Well, actually there is more to this than meets the eye.
What are the true hidden facts?
Well, it may be true that due to the new law the country may be attracting more and more tech and crypto savvy people to the country. But the truth seems to be much grimmer when you look at the fact that the country’s economy is heavily interconnected with the highly volatile Bitcoin that is down by 17.5% since the start of the year and 44% down from its ATH in November 2021. It has been estimated by experts that the above events have cost the country to lose $22 million in reserves. Further, talks are going around regarding the impending crypto winter which may have further serious repercussions on the country’s economy once it really happens.
The more concerning part is that it isn’t clear about the economic strategy that the government follows in investing its cash reserves in Bitcoin. From what we understand President Nayib Bukele goes on a random Bitcoin buying spree based on a whim without doing any market research or without accessing that how would it affect the economy as he has himself mentioned in the past that he invests the country’s reserves in Bitcoin “naked from his smartphone.” Yup, you read that right, he indeed said that he sometimes invests the country’s money “naked from his smartphone.”
Another, repressing matter is that the IMF has warned El Salvador regarding this new law and requested them to retract it on several occasions stating that having such a volatile asset as a legal tender has large risks to which the government has paid no heed. What this means is that the IMF which distributes aids and loans to member countries may feel reluctant to help El Salvador in the future when the time comes. Even the US senate recently presented a bill which if passed may become the first step of triggering FATF action against El Salvador.
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