Salvadoran President Nayib Bukele came out swinging this week, accusing the U.S. of interfering with the country’s finances and calling out a report that $1 billion bitcoin bond was delayed due to the cryptocurrency’s price collapse.
The story begins on Tuesday (March 22), when Finance Minister Alejandro Zelaya told local television program “Frente a Frente” that he thought “this is not the time” to go to market with the government’s much publicized and highly hyped bitcoin bond.
Suggesting a time frame between May and September, Zelaya only referred to the Russian invasion of Ukraine and subsequent sanctions obliquely — saying, “There are some moves on the planet” which have badly spoked financial the financial markets.
But that was clearly a concern as investors shy away from risky investments even more than they have since inflation started soaring in the last few months. Nonetheless, it was a climb-down for the bond issue, already postponed to mid-March.
The delay, President Bukele said in a March 23 tweet accusing Reuters of spreading “FUD” — fear, uncertainty and doubt — “is only because we are prioritizing internal pension reform and we have to send that to congress before” the bond is issued.
The bitcoin-backed “volcano bonds” are not only offering a far lower interest rate than El Salvador’s standard bonds, they rely on the cryptocurrency’s price rising substantially.
While the administration has bragged it will be oversold to the tune of $1.5 billion, the volcano bond and broader issue of using bitcoin as legal tender is looking more and more like the proverbial hill President Bukele is willing to die on.
Calling Out the US
Bukele reacted with outrage when a U.S. Senate committee passed a bill intended to “mitigate potential risks to the U.S. financial system,” cause by El Salvador’s decision to make bitcoin legal tender, according to Sen. James Risch (R.-Idaho)
Any realistic risk to the U.S. financial system is effectively non-existent, but the proposed Accountability for Cryptocurrency in El Salvador (ACES) Act has served its purpose. Which was more about making a statement against using a private cryptocurrency as legal tender and getting a rise of Bolivia’s president, who tweeted ,“Never in my wildest dreams would I have thought that the US Government would be afraid of what we are doing here.”
In the Weeds
Bukele’s reaction this week is how much bore a strong resemblance to the internecine shouting matches that are commonplace in the crypto community. It was carried out on Twitter, included accusations of “FUD” — two standards for inside-baseball crypto sniping. Reuters pointed out that President Bukele was meeting with the head of a cryptocurrency exchange (Binance) that is not the one on which the tokenized volcano bond will be issued (Bitfinex) — suggesting that the project needed a savior.
“I’m a fan of @BitcoinMagazine, please don’t spread @Reuters FUD,” Bukele tweeted in response, linking to more favorable coverage in a crypto industry publication and adding that the volcano bonds “will be issued with @bitfinex.”
The whole thing was a lot deeper in the crypto weeds than you’d expect the president of a country to get, but that’s par for the course for Bukele’s dealings with bitcoin.
Accepting Bitcoin as legal tender has butchered the country’s debt rating, which both Moody’s and Fitch Ratings have slashed well below junk. It also threw the brakes on a $1.3 billion loan from the International Monetary Fund that El Salvador needs to pay off traditional bonds coming due at the beginning of 2023.
And the broader issue of using bitcoin as legal tender is increasingly unpopular in El Salvador, where few people are using it and few businesses are accepting it.
Nor is it used for remittances, with Salvadoran newspaper La Prensa Grafica reporting that less than $20 million had been sent that way through February, out of total of $1.125 billion. It added that the amount sent via that route — which is far cheaper than traditional cross-border payments rails — has been declining monthly.