El Salvador’s bet on bitcoin must not distract from democratic erosion

As the value of bitcoin dropped last week, a high-profile figure took to Twitter to boast that he had “bought the dip.”

One would be forgiven for thinking it was Elon Musk, Tesla CEO and cryptocurrency cheerleader, rather than Nayib Bukele, the populist president of El Salvador.

“Missed the f***ing bottom by 7 minutes,” Mr Bukele tweeted on Saturday, shortly after posting that El Salvador had bought 150 bitcoins at an average price of $48,670.

In September, the impoverished Central American country became the first to adopt bitcoin as legal tender – a move that generated endless headlines and memes, but also drew severe warnings from economists and financial institutions worldwide.

Mr Bukele has since doubled down – not just by increasing his country’s holding to at least 1,370 bitcoins (worth approximately $67m at the time of writing) but by announcing plans for a crypto city, using geothermal power, at the base of a volcano.

The project, which would be initially funded by bitcoin-backed bonds, has drawn criticism over the potential impact on the environment in a country which cannot meet its own electricity needs and suffers badly from water shortages.

Mr Bukele – who goes by “CEO of El Salvador” on Twitter and frequently posts memes – has repeatedly said the adoption of bitcoin will boost investment to the country and make it easier for Salvadorans living abroad to send payments home.

At least 3 million people have downloaded the country’s cryptocurrency app, but a nonprofit survey conducted in October – a month after the launch – found a small percentage of active users, while most companies had reported no bitcoin payments.

What’s more, only 2.6 per cent of the remittances sent home in September and October were bitcoin transactions – worth $32.2m. El Salvador receives about $6bn a year in remittances, which account for a quarter or so of its GDP.

Setting aside playful comparisons to James Bond villains and so-called Crypto bros, scrutiny and critique of Mr Bukele’s bitcoin mania – be it by activists, academics or journalists – must extend beyond the obvious economic and environmental pitfalls.

For there is a danger, critics say, that the president is profiting from the global crypto craze to deflect attention from his authoritarian rule, erosion of state institutions and consolidation of power, amid growing concern from major powers including the US.

In May, lawmakers aligned with Mr Bukele’s party voted to remove the supreme court’s top judges and replace them with justices considered as pro-president. Just four months later, the court ruled that the 40-year-old leader could run for a second term in 2024, overturning a ruling that prevented re-election for a decade.

Just look to the US and Brazil to see how past and present leaders Donald Trump and Jair Bolsonaro have turned to outlandish claims and campaigns – relying heavily on social media – to distract from criticism, wrongdoing and more pressing matters. The world should avoid making the same mistake with Mr Bukele and El Salvador.

Yours,

Kieran Guilbert

Deputy international editor