Nayib Bukele, dressed in pristine white and in front of an audience of foreign investors and people, announced on November 20 that El Salvador will have a new city called Bitcoin City.
According to him, the idea of the city is inspired by the mythical Alexandrías of Alexander the Great but with the component of the new economic experiment based on cryptocurrencies.
Although no technical plan for this project has been disclosed, Bukele promises that the urban center will be located in the department of La Unión, very close to the Conchagua volcano, whose geothermal energy will supply the needs of the urban center and the requirements of the companies that They are engaged in bitcoin mining.
However, analysts and experts agree
that it is impossible for a project of this magnitude to materialize in the coming years.
"El Salvador has the natural resources to generate that energy, but it does not have the infrastructure. We must remember that we are one of the poorest countries in the region and that money could be invested in health and education," warns José Miguel Cruz, an academic from Florida International University.
Bukele says that
The city will be totally ecological, and will have almost total tax exemptions: only the value added tax will be charged (13%, of which 6.5% will go to the issuance of bonds for the construction of the city and the rest will be handled by the municipality of the new city for public services and other urban needs).
These incentives to attract investment to the country are a double-edged sword, according to analysts, because
the Government lacks the necessary institutional controls to be able to detect and sanction money laundering activities
related to bitcoins.
An avatar of President Nayib Bukele, at the event in Santa Maria Mizata, El Salvador, on November 20, 2021 Salvador Melendez / AP
"The Salvadoran government has been characterized by the systematic destruction of the institutions of political and financial control, in addition all projects with bitcoins are not transparent. So we
do not know who guarantees that there are no money laundering operations,
" explains Cruz.
"It is not only a beautiful idea, it is the evolution of humanity," said Bukele, in English ("This is not just a nice idea, is the evolution a humankind"), to the audience who saw him in a hotel in the city. Mizata beach in the middle of a display of lights, smoke machines, an AC DC song and visual images that showed, among other things, his figure descending from a multicolored UFO, his face in maximalist proportions and a recreation of the square that It will be in the center of the new city.
Seen from the air, the square will display the bitcoin sign.
News from another world
Almost 200 kilometers away, Dalila Meléndez, 45, watched the event as if it were news from another world.
"
In Soyapango nobody uses those bitcoins.
Neither my friends, nor my neighbors, nor do they receive them in the store, they do not serve us because here everything is still pure dollars. That of the president is for other people," said Meléndez in an interview with Noticias Telemundo, who works in a maquila in the San Bartolo Free Zone.
More than two months have passed since bitcoin began to circulate as legal currency in El Salvador and a recent survey revealed that, when Salvadorans can choose with which currency to pay,
91.4% of people use the dollar, while only a 4.9% favor bitcoins.
Now everything is more expensive, everything in the basic basket has gone up a lot ".
dalila meléndez, a maquila employee
However, when the poll by the Centro de Estudios Ciudadanos, of the Francisco Gavidia University asked them about the decision to adopt bitcoin as a currency, 35% declared they were in favor and 40% spoke out against the measure.
"The truth is that now everything is more expensive, everything in the basic basket has risen a lot. The oil, the meat ... this bitcoin thing has not helped us yet," says Meléndez, discouraged.
El Salvador's President Announces Construction of First 'Bitcoin City'
Nov. 22, 202101: 02
"Despair for financing"
Beyond the spectacular event, many analysts did not focus their attention on the idea of Bitcoin City but on another announcement: the issuance of "volcanic bonds" in the bitcoin ecosystem worth 1 billion dollars.
According to a document that Salvadoran government officials have distributed among potential investors, and to which Noticias Telemundo had access,
the operation of the bonds would be carried out in 2022 and half of the amount will go to the purchase of bitcoins.
The rest will be used to develop infrastructure in areas such as energy and cryptocurrency mining.
The bonds will last 10 years with a rate of 6.5%, that is, if this proposal is materialized, El Salvador will have to pay about $ 1.65 billion to investors.
This announcement came in the middle of the Bukele government's negotiations with the International Monetary Fund to obtain a loan of 1.3 billion dollars in order to improve state finances because, according to various specialists,
the country runs the risk of incurring the default on sovereign bonds maturing in 2023.
Salvadoran President Nayib Bukele is shown in a photomontage as emperor and goes viral
Oct. 22, 202100: 50
"Behind the announcement of the city and the volcano's bonds, what I see is desperation to seek financing for its populist programs," explains Ricardo Castaneda Ancheta, an economist at the Central American Institute for Fiscal Studies.
"El Salvador's risk profile has skyrocketed to levels never seen before. If the country were to go out to place bonds in international markets, it would have to pay an interest rate of 14 or 15%, that is, it would be financial suicide. they are looking for alternatives, in case the IMF is not achieved ", asserts Castaneda Ancheta.
[Nayib Bukele negotiated with the three main gangs in El Salvador to reduce murders]
For Cristian Flores, presidential commissioner for strategic projects, El Salvador's foray into the world cryptocurrency scene has been providential for the country's economic boost.
According to him, the new city is inserted in a series of government projects that seek to develop in the south of the national territory.
"
This year we achieved a growth of 10 points, it is the first time in our history.
That had never been achieved and it is thanks to the economic strategy. In addition, a few days ago we received more than 2,000 investors and some had capitals of up to 6,000 millions of dollars in bitcoins. Everything is part of a plan, "Flores explains in an interview.
But the IMF made a technical visit to the country and in the document that includes its conclusions, it warns about the possible growth of the country's public debt to levels above 95% of the Gross Domestic Product by 2026. And it asserts that
the use of bitcoin as currency Legal entails serious risks due to the volatility of cryptocurrencies.
"The Government clings to that growth figure, but it is not real. It is a rebound due to the 8% fall of last year due to the pandemic, in addition all projections estimate that in the next few years we will grow again between 2 and 2.5% If it really were solid growth, we would have levels of 7 and 8% in the following years. But that will not happen, "says Carlos Acevedo, economist and former president of the Central Reserve Bank.
A figure of Nayib Bukele burned in new protests in the streets of El Salvador
Oct. 18, 202101: 33
Who regulates bitcoin?
Bitcoin was created (it is not yet known whether it was the idea of a single person or a group) as a way to carry out transactions without the intervention of a trusted third party, such as a central bank or a financial institution.
This is almost like a nationwide casino: it is playing with public money betting it without having any certainty "
Jose Miguel Cruz.
FIU ACADEMIC
That is one of its great attractions and, paradoxically, it is what makes Bukele's commitment to this cryptocurrency so novel because it is not the same to invest personal funds, or that of a business group, to spend part of a nation's budget. in a deeply speculative market.
Much more than oil or other
commodities.
"
This is almost like a nationwide casino: it is playing with public money
betting it without having any certainty.
If there is a stroke of luck and it generates a lot of money, in the end it is not clear how it will be invested and distributed in the country. But the worst thing is that bitcoin falls and it is an irreparable loss for such a poor nation, "says Cruz, the researcher at Florida International University.
Another element that causes great concern among experts is one of the most touted advantages of bitcoin: allowing transactions only using digital identities, which gives users a certain degree of anonymity.
El Salvador could be considered a haven for money laundering. "
Ricardo Castaneda Ancheta, economist
Its increasingly widespread use has made this cryptocurrency the preferred currency for many illicit activities, such as computer attacks, or intricate digital networks of illegal trade to buy drugs, weapons and even hire hitmen, according to various reports.
Hundreds of Salvadorans protest against the administration of President Nayib Bukele
Oct. 17, 202100: 24
"At this time, the Government does not have the ability to determine if a bitcoin comes from an investor who obtained it by mining, in legal exchanges, or from someone who extorts or is engaged in drug trafficking.
Criminals are going to find a field fertile because there is no institutionality
, El Salvador could be considered a paradise for money laundering, "warns Castaneda Ancheta.
In addition, the expert assures that, after approving the law that allows the circulation of bitcoins, the financial regulations were not modified, so "there is no legal framework" to detect and sanction illicit operations carried out with cryptocurrencies.
In this regard, Commissioner Flores assures that El Salvador is frontal in the fight against corruption and explains that Bukele demands that the government's finances "be clean."
"We have seen the development of cryptocurrencies and how control mechanisms have improved. As a country we know that it is necessary to be open to these investors, but they must always go through a filter, a process of knowledge and that our laws can be applied.
Everything
.
in life it improves and changes, so our laws will evolve as different cases arise
, "says Flores.
But in July of this year, the State Department unveiled a list of corrupt officials implicating 14 Salvadorans, including the chief of staff, Carolina Recinos, who was linked to a money laundering ring.
Nayib Bukele forcibly retires dozens of judges and prosecutors in El Salvador
Oct. 4, 202101: 47
The creation of a city
Bitcoin City pretends to be a city built in a wild environment with many tourist attractions on the nearby beaches, so it lacks the necessary infrastructure to house thousands of people and dozens of companies.
According to the presidential commissioner Flores, the south of the country will become a center for tourism, economic and technological development with the construction of the Pacific airport, the reactivation of the port of La Unión (a project that has never operated efficiently), the lifting of a shipyard and, of course, the new town.
He assures that in the area of the Gulf of Fonseca
a private tourism investment in the order of 2,200 million dollars has been projected.
"The first thing we need is to have the capital because urban projects of this size are sold in plans and then you start to decide the times. I think that in the next five years we could have great advances in the works and, why not, in 10 years to achieve a developed project, "says Flores.
In general, building a city is a slow process despite contemporary technological advances.
In the case of Bitcoin City, a municipality must be created, use state land to start the construction of infrastructure and expropriate the extensions of land that it needs to complete its objectives.
"It's crazy to think that everything will be done in a few years. In fact,
I don't remember any project in a Salvadoran city that has been built from scratch in the last century
and this is going to cause problems for the people who live in those areas. because we are a densely populated country. So they will have to expropriate, "says Cruz.
Three days after the event on Mizata beach, the Salvadoran Legislative Assembly, dominated by the ruling party, approved a law that allows the expropriation of real estate for municipal works.
Hundreds march in El Salvador against President Nayib Bukele and call him dictator
Sept.
15, 202100: 29
The energy problem
In his presentation, Bukele emphasized that Bitcoin City will have "zero CO2 emissions" because the new urban center, and cryptocurrency mining operations will use the country's geothermal energy.
Various investigations have warned about the vast environmental impact of bitcoin mining, because it can consume as much electricity as a medium-sized country.
According to recent calculations by the University of Cambridge, bitcoin mining consumes 133.68 terawatt hours (TWh) of electricity annually, a figure that has risen steadily over the past five years.
That places the energy demand of that industry just above Sweden,
with 131.8 TWh of electricity consumption in 2020, and just below Malaysia, with 147.21 TWh.
El Salvador remains divided on the benefits of the entry of bitcoin as a second currency
Sept.
12, 202101: 52
"It is true that we are pioneers because 25% of the energy that the country uses is of geothermal origin, but that has been achieved in more than five decades.
It is not installing a plant and, at once, we are going to get a well with 90 or 100 terawatts,
that will never happen so fast, "says Carlos Martínez Cruz, professor of electrical engineering at the University of El Salvador.
Because of this, the Salvadoran government plans to use part of the installed capacity of a geothermal plant located in the town of Berlin, while the facilities are being built on the Conchagua volcano.
But, according to Martínez Cruz, that solution will create another problem that will end up affecting the environment.
"They are going to use a plant that is already operational to use that clean energy in the cryptocurrency industry, but that is going to leave a lot of people without electricity because we import electricity. So they are
going to have to create plants that burn petroleum derivatives to cover the deficit and that will increase pollution,
"says Martínez Cruz.
I think Bukele is going to raise a lot of money with the bonds and the city, this can change things. "
Juan Mayén, Honduran entrepreneur
The academic warns that the new city will be located in a very hot area, so that mining will not only consume electricity in its computer processes, but solutions must be implemented to cool the equipment, "which consumes much more energy."
Bitcoin begins to circulate in El Salvador amid protests against the use of the currency
Sept.
7, 202101: 14
For entrepreneurs like Juan Mayén, director of the Honduran company TGU Consulting Group, El Salvador is the promised land, a place where with an electronic wallet you can pay for a coffee or a pizza, which he believes will boost the use of cryptocurrencies in the region .
"We recently installed the first bitcoin ATM in Honduras, but what the Government of El Salvador is doing is very innovative. I think Bukele is going to raise a lot of money with the bonds and the city, this can change things," he says in an excited tone.
Meanwhile, many Salvadorans, like Dalila Meléndez,
distrust money they cannot touch and continue to prefer dollars for their daily lives.
"In my neighborhood, many people took the $ 30 from the Chivo wallet [created by the Government to promote the use of bitcoins] and took them out, but they didn't use it anymore. I don't understand much of that," he says.
