El Salvador would stop bitcoin bonuses due to its economic struggles. The bitcoin national reserve funds are facing several losses.
Almost a year after El Salvador accepted bitcoin as legal tender, the nation achieved a slow economic evolution, with a fiscal deficit and at least 90% of gross domestic product (GDP) in public debt. This information arrived according to the newsletter of Frank Music, a member of the London Institute School of Public Policy, LSE.
The report highlights that the sovereign bond of USD 800 million will mature in January 2023, which might include a default probability of 48 %. On the other hand, international financial markets think that there is an opportunity that El Salvador would stop payments for the next eight months, after a year of bitcoin acceptance in the Latin American nation.
The scenario in El Salvador became dangerous to the extent that Salvadorans even house their foreign funds in safe entities based in the United States of America instead of in local banks. These large outflows of cash to the US will boost the liquidity of the national entities of the Central American nation, which will lead to a total stage of insolvency.
The bulletin ends by presenting that, although the situation might be complicated for Salvadorans, there is a chance that the national leaders would pay the debt to keep maintaining international financing. According to Muci’s perspective, the bankruptcy of the country would get circumvented by the presidency, especially considering that the elections are near again and the adoption of Bitcoin ended up becoming a significant improvement for the nation. However, this does not solve the subsequent uncertainty in which the country’s population got trapped.
Bitcoin did not Improve the Salvadoran Economy
Since the acceptance of bitcoin as legal tender in El Salvador, the nation revealed that inflation crumbled slightly in the last month. The population still thinks this policy did not bring enough advantages to solve the economic problems of Salvadoran citizens.
In addition, the historical maximum price of USD 67,800 is now worth USD 30,000, which is 55.7% less than a few months ago. These figures demonstrate that Bitcoin is no longer an option for the nation and is now a current problem for the administration.
Instead of helping to bring advantages to the local economy, the Salvadoran government’s purchases of bitcoin, at a time when its price was at its highest, currently brought a wave of losses in the national reserve of the first digital asset. El Salvador counts 2,301 bitcoins in its reserve, which would be at least 69 million US dollars or more.
Not Only El Salvador is Falling Down
The World Bank updated its report on Global Economic Perspectives and sent the global growth forecast down to 2.9%, that is, 1.2% less than what was projected in January when it positioned it at 4.1%. This reduction takes effect due to the impact of the more than 100 days that Russia was attacking Ukraine, which seriously damaged the global economy with an increase in the price of raw materials.
By: Jenson Nuñez
