This will be ‘Bitcoin City’, Bukele’s cryptocurrency paradise project in El Salvador | markets
The president of El Salvador, Nayib Bukele, presented this Tuesday the first images of Bitcóin City, the tax haven project for cryptocurrencies and blockchain technology that he announced in November 2021. The president has shared through the social network Twitter illustrations and photographs of scale models that anticipate what the metropolis would look like, which will be built on the coast of the Central American country, near the Conchagua volcano. Bukele. However, he has not clarified when or how the construction will begin, which was supposedly going to be financed with the sale of sovereign bonds in Bitcoin. for the value of 1,000 million dollars that his Government has not yet been able to position in the market.
The Salvadoran president has clarified that unlike the golden scale model of the photographs, the real version of Bitcoin City will be full of green areas. Likewise, he has indicated that it will have monuments, a viewpoint from the volcano, commercial and residential areas and an airport. Bukele stated last year that most conventional taxes will not apply in this territory. “We’ll have no income tax, forever. No income tax, zero property tax, no hiring tax, zero council tax, and zero CO2 emissions. The only taxes they’re going to have in ‘Bitcoin City’ is VAT, half will be used to pay the municipal bonds and the rest for public infrastructure and maintenance of the city,” assured the head of state during the presentation of the project in November.
Bukele also assured in his networks that the government of El Salvador bought 500 Bitcoins this Monday, in his largest purchase to date of the cryptocurrency. In the context of the sinking of the Bitcoin price below 31,000 dollars for the first time since July 2021, Salvadorans bought the crypto assets at an average price of 30,744 dollars according to the president. The Bloomberg agency calculates that El Salvador has bought about 2,301 Bitcoins since it became legal tender in September of last year.
The Caribbean country, however, does not seem to be in optimal conditions to assume this expense. El Salvador’s sovereign debt prices collapsed in April, sinking 15.1% to record lows, a drop second only to Ukraine’s debt since the outbreak of war with Russia. Indeed, El Salvador’s benchmark bonds due in 2032 are trading at record lows, at 40% of face value, suggesting investors are bracing for default.
The president of the central bank of El Salvador, however, has assured that there is a “zero risk” that the country will stop paying its creditors. The rating agency Fitch Ratings, however, cut the country’s rating to CCC in February –to one notch of the degree of speculation–, warning of a greater dependence on short-term debt, limited sources of financing and a public debt in increase that is expected to reach 87% of GDP in 2022. Discounts to which Moody’s has been added.
El Salvador’s transition to a blockchain and cryptocurrency-based economy appears to be a failure. A study by National Bureau of Economic Research in 2021 indicates that only 20% of Salvadorans who downloaded the Chivo application, which the Government designed to facilitate daily transactions with cryptocurrency, continued to use it after spending the 30 dollars that the authorities gave away to promote its use.
In this context, the IMF once again urged the Salvadoran government to reverse its adoption of the cryptoactive as legal tender, warning in February that, mainly due to its high volatility, this implies significant risks for the financial stability of the Central American country. The international organization’s talks with the country have been stalled since the IMF announced that it should assess the risks of bitcoin before granting a loan.
