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Like crypto-twitter cascaded with apocalyptic memes, Bankruptcy of virtual currency exchange FTX And in the face of the sharp drop in Bitcoin price, one account has been particularly silent on the topic.
Unlike previous crashes, El Savrador President Naive Bukele who created bitcoin legal tender a year ago, Didn’t encourage his followers to “buy dips”.of laser eyeis a favorite among cryptocurrency traders and has long since been removed from his Twitter profile.
On the day FTX declared bankruptcy, he announced that the country would sign a free trade agreement with FTX. ChinaHis vice president, Felix Ulloa, said China had offered to buy the country’s $21 billion in foreign debt as part of the deal.
The Central American country of 6.5 million people is in dire financial straits. In January, he will have to pay 667 million ($688 million) for the redemption of the Eurobonds. Bukele earlier this year promised to issue bitcoin-denominated bonds to help his country pay off its sovereign debt, and predicted that the price of bitcoin would reach his $100,000 mark.
However, the so-called volcano bonds never appeared and Bitcoin is currently hovering around $16,000.of best tracker Part of the president’s opaque trading estimate of spending over $107 million on 2,381 bitcoins. Today, that investment is worth just over $40 million to him.
If Mr. Bukele dreamed that he could create a different and innovative political economy against the advice of the IMF, his dream has failed, said Salvadoran economist Luis Membrao. . There are no easy alternatives or shortcuts.
Bitcoin losses are relatively insignificant to overall debt, but the president’s determination to ridicule advice from the IMF to back down on bitcoin policy has taken international markets by surprise. When it announced it would lower the country’s credit rating on , Bukele tweeted: El Salvador DGAF”, an acronym for “Don’t Give a Fuck”. Now Fitch says it is likely that some form of default will occur in January.
With inflation rising, a recession looming and financial conditions deteriorating, El Salvador is unable to keep its printing presses running. Because El Salvador adopted the US dollar as his national currency in 2001. Instead, the government reduced reserves to fill the fiscal hole. Membreo said the country could eventually be forced out of the dollar if the situation worsened.
But accepting debt financing from China would mean a decisive disconnect from the United States, bringing China, Russia and Turkey closer together, Membreo said. “It would mean a complete reorganization of El Salvador’s foreign policy,” he said.
That funding won’t come cheap, according to Evan Ellis, a senior associate at the Washington, D.C.-based Institute for Strategic and International Studies. China acts as a payday lender and makes substantial profits from these deals, he said. But they often find ways to tie loans to long-term commercial and strategic interests, paving the way for Chinese companies.
ever since El Salvador ended ties with Taiwan in 2018China has agreed to build a stadium and library in the country, but plans to turn La Union port into a logistics hub have stalled.
Closer ties with China could also fit Bukele’s own ambitions. He has drawn criticism from the United States and Europe for violating the country’s constitution and seeking re-election in 2024.
“China acts as a non-judgmental underwriter when populist governments, either left or right, come to power,” Ellis said. China can give Bukele economic independence, become authoritarian, and wreak havoc on the constitution.
With an approval rating of around 90%, Bukele remains Latin America’s most popular president. Heavy-handed approach to law and order Regular attacks on old political elites.
When Salvadorans elected him in 2019, many felt they were in a last-chance saloon after decades of traditional party corruption and a surge in gang crime.
But Bitcoin gambler Bukele doesn’t know when to hold or fold Bitcoin. Closer ties with China represent yet another roll of the dice.
