In 2021, El Salvador makes the radical decision to make bitcoin an official currency. A year later, the country is in dire straits.
In September 2021, the government of El Salvador makes bitcoin an official currency, next to the American dollar. This, despite the warnings of the world Bank and IMF. A first in the world that several players in the cryptosphere have not failed to welcome; going even to qualify it as a idea of the century. But a year later, what was then an innovation officially turned into a disaster: the country was plunged into a economic crisis.
It is in June 2021 that the Parliament of El Salvador passed the law to make bitcoin an official currency of the country. After the vote, the country’s president, Nayib Bukele, shared the news on Twitter. A decision which was then hailed by many crypto enthusiasts.
Adopting bitcoin was indeed entering the development program from the country. The government thought that such an adoption could be bait to attract big investors and so boost the Salvadorian economy. The country could thus free itself from theinfluence of the american dollar on its economy.
Official adoption coincided with the rapid rise of the queen of cryptocurrencies. Whereas the value of bitcoin had increased by 50%, the country’s economy had also done a good. The Salvadoran state then injected hundreds of millions of dollars to increase its bitcoin reserve. Many investors had therefore dropped off their suitcases in the country.
Moreover, in this poor country where nearly half of the population did not have bank accounts, a mobile application had been downloaded in droves to use bitcoin. This has obviously led many merchants to offer cryptocurrency payments. So, everything was going well until the lean period arrived.
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You surely know it: bitcoin is a rogue. He is still very volatile and does not forgive when he has to fall, as he can raise his head when he decides to rise in value. This is a bit like what happened in El Salvador.
By increasing in value, the currency of Satoshi Nakamoto promised a bright economic future for the country. But this bright future will eventually give way to doubt when the value of bitcoin drops drastically and struggles to recover. This induced a big loss in the country. Many traders have seen the value of their trade drop and investors are caught off guard.
All this did not spare the general economic situation from the country. The debts of El Salvador thus exploded. Yet the government continues to maintain its faith in bitcoin. What moreover blocks a economic aid which was intended for him. The IMF and the World Bank opposed it.
This only accentuates the hard situation the country is already experiencing. This one could also know worse if nothing is done until January 2023. And difficult to find creditors who will still want to trust today.