As El Salvador’s Bukele Approaches Re-Election, Bitcoin Entrenchment Deepens
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With President Nayib Bukele’s re-election date less than three months away, Bitcoin is seeing continued increases in institutional support within El Salvador, suggesting a strong foundation for the country’s experiment with Bitcoin as legal tender.
Election season is entering full swing in the Republic of El Salvador, with the actual vote for President scheduled to take place on February 4, 2024. Polling for a possible election has shown him to have an overwhelming lead over any competitors for months now, although there has been a persistent question of his eligibility to seek re-election. As of early November 2023, the courts have officially declared his candidacy to be valid, and from where things look now, he seems on track to win a second term. Bukele has been famous for a few different policy decisions; although a large degree of his domestic popularity is due to his anti-gang crackdowns, his presidency has been particularly renowned internationally for his campaign to make Bitcoin legal tender.
El Salvador officially adopted Bitcoin as a valid currency in September 2021 after several months of effort, and since then the country has been home to an experiment of historic proportions. Many of the world’s financial institutions have shown considerable and persistent opposition to this experiment from the very beginning, and for fairly straightforward reasons: Before Bukele added bitcoin, the only legal currency in El Salvador was the US dollar. This situation put El Salvador in an unenviable situation where another country held a direct and powerful leverage in all economic matters. Removing this leverage was an important motivator, but there are many other benefits to a borderless currency in an economy like El Salvador’s: For example, international remittances are a major sources of income for many Salvadorans, and bitcoin offers a way to cut out traditional financial middlemen like Western Union.
Although these two years have been marked by growing pains, many clear signs now exist that El Salvador’s new economic model is gaining acceptance in the broader world economy. For instance, the S&P upgraded the nation’s credit rating in November, citing consistent efforts to manage its debt obligations and overall economic stability. A major boost to this growing stability has been Bitcoin and its new opportunities, as tourism has massively increased with visitors from the US alone doubling since Bukele first took office. Bukele’s administration credits Bitcoin with this success, with Vice President Ulloa calling it the “driving force” of the “rebirth of the country.” The data seems to bear this out, as El Salvador has become popular with foreign full-time residents in addition to tourists, due to the ease of using bitcoin in daily life.
So, with all these factors pointing to Bitcoin serving a major role in the economic development of the country, it seems natural that this policy will become a well-established feature of the nation for years to come, right? There’s just been one hiccup with this plan, and it’s that the population has still shown some reluctance to adopt Bitcoin on a mass scale. Although it certainly has no small number of adherents, the country is far from a status of hyperbitcoinization, where most people use the currency on a regular basis or exclusively. Since the largest part of Bukele’s domestic popularity has come from his reputation as a crimefighter, it’s not inconceivable that even a successful re-election could see Bitcoin gradually de-emphasized.
However, it seems as if increasing institutional support will prevent this backslide from happening. The government has consciously undertaken actions to facilitate a powerful domestic Bitcoin community in the country, like its ongoing contributions to the Lava Pool project, which seeks to encourage local companies to sprout up in the business of Bitcoin mining, all using renewable energy. Although projects like this have been useful for creating a new ecosystem, the government cannot do this alone. Luckily, it won’t have to, as major investments are taking place without the direct encouragement of the state. Distribuidora Morazán, the second-largest distributor of goods in El Salvador, announced that it would be accepting and encouraging Bitcoin through a partnership with the wallet and API platform Blink. The firm does not directly supply goods to consumers themselves, but acts as a middleman: Selling its wares to some 40,000 merchants across the country.
In other words, Distribuidora Morazán is hoping to increase Bitcoinization with business-to-business (B2B) transactions, and it is actively encouraging these businesses to accept and promote Bitcoin, too. Company CEO Jacir Garcia-Prieto claimed that “our distribution operation, until today, has been predominantly managed in cash and this presents a series of logistical, time, and operational difficulties that slow our day-to-day ability to visit more points of sale. Bitcoin solves that.” He added that “The vast majority of our customers do not have access to banking services and this is the perfect way to introduce them to their first financial tool.” Within days of its launch, the plan was rolled out to dozens of merchants, and they hope to reach 1,000 in the next year.
This is not the only major business initiative to take place at this time, as Bitcoin ATM providers Athena and Genesis Coin have also begun a plan on November 8 to add Lightning Network functionality to Bitcoin ATMs across the country. Although there have been some stalled attempts to introduce this vitally important second-layer solution to El Salvador, the persistent drive to try again shows a real confidence that it will be a profitable investment. The Lightning Network allows for Bitcoin wallets to carry out much smaller transactions without delay or high fees, and it is frequently considered more or less essential in using bitcoin for small purchases. For Salvadorans deciding to try out bitcoin, this new upgrade will make the experience that much easier.
Everything seems set for El Salvador’s Bitcoin experiment to turn into a full-fledged economic institution. President Bukele has managed to carry out a remarkable transformation in his first term, and it’s anyone’s guess as to how far he could continue the project with a few more years at the helm. Although the majority of the population remains skeptical of Bitcoin itself, they still love his administration overall, and now many of the hardest growing pains are in the rear-view mirror.
Bridges are being rebuilt with financial institutions worldwide and Bitcoin is bringing in huge dollars in tourism; more to the point, confidence is growing. Bukele’s government has taken an active hand on several occasions with trying to grow the domestic Bitcoin industry, but other private firms have decided to invest independently. Even if the need to win re-election and maintain normal administration takes up a lot of Bukele’s focus, companies like Distribuidora Morazán are more than capable of progressing the vision. With a few more years of growth like this, El Salvador’s Bitcoin adoption could truly become an economic model to inspire innovation worldwide.
13 November 2023 16:37