In 2021, the world’s largest cryptocurrency, Bitcoin, was made legal tender in El Salvador alongside the US Dollar. The movement to legalize Bitcoin was led by the country’s president, Nayib Bukele. While his pro-crypto stance endeared him to crypto advocates, bond investors haven’t been very impressed with it.
According to Bloomberg-compiled data, the losses of El Salvador’s overseas notes are approaching 30%. The country’s bonds are priced well below 80 cents on the dollar right now, and skeptics suggest that it’s unlikely for holders to be paid back within time. President Bukele has the intention of selling $1 billion in early 2022 in the form of tokenized dollar-denominated debt. Traditional financiers believe that Bukele’s straining ties with the USA coupled with his unconventional plans for the economy will backfire on them.
An El Salvadorian investor in Zurich’s Vontobel Asset Management has come out against Bukele, calling him an unpredictable man. The investor, Carlos de Sousa, said that never before has the world seen a President who trades Bitcoin with government money on his phone. Bondholders are concerned about El Salvador’s worsening budget deficit, which they think the country can’t or won’t pay back.
In 2020, El Salvador’s gross indebtedness rose to 89% of the country’s gross domestic product. If current economic conditions persist in the country, the figure is likely to rise to a dangerous 98.6% over the next 5 years. These statistics were made public by the International Monetary Fund (IMF).
Bukele has spoken out repeatedly against the USA, which in turn, has sanctioned multiple officials. It will be interesting to see how Bukele manages to incorporate crypto adoption without putting the country’s traditional economy at further risk.