All eyes are on El Salvador’s bitcoin bonds this week as the Latin American country hopes to raise $1 billion. Revenue from the bonds will be used to buy more BTC. It will also be used to fund El Salvador’s ambitious “Bitcoin City” near the Conchagua volcano.
Carlos Acevedo, the former president of El Salvador’s central bank, highlighted that the issuance will “define a lot”. He said a lot of doors will close if its a failure. Moreover, analysts believe that the benefits of the bonds are limited. This is because sovereign bonds give higher returns than bitcoin bonds’ 6.5% coupon.
In recent months, the International Monetary Fund has urged El Salvador to revoke bitcoin as a legal tender. The IMF fears that it could push the country’s budget deficit to 5%. It should be noted that the Latin American country’s sovereign bonds have been languishing since last year. The El Salvadoran government is struggling to pay existing debt.
President Nayib Bukele has been pushing for bitcoin initiatives touting the crypto asset as a “big and attractive bet”. He is dependent on entrepreneurs and retail investors across the world for the success of bitcoin bonds. There have been drawbacks for El Salvador too. Only 2% of remittances in January were sent from digital wallets. The Bukele-led government had legalized bitcoin as legal tender because of the costly overseas remittances in fiat currency.
A bank executive said 0.01% of the debt was being paid in bitcoin. The El Salvador government pointed out that in November and December of 2021, the country saw 20% of transactions involving bitcoin in the tourism sector.
However, a number of people have called out the government for its secrecy surrounding the purchase of bitcoins. Ruth Lopez, a senior official at Cristosal, said the clearest government policy is opaqueness with public money.