El Salvador forced its citizens to use Bitcoin – here's what happened

A bitcoin symbol is presented on an LED screen during the closing ceremony of a congress for cryptocurrency investors in Santa Maria Mizata, El Salvador, on November 20, 2021. Photo / AP

Rosa Molina, a 27-year-old waitress from El Zonte, on El Salvador's Pacific coast, has vowed never to use Bitcoin again.

Last September, the country's populist president Nayib Bukele promised to make this Central American nation the Bitcoin capital of the world, ordering that it become official tender and forcing all businesses to accept the cryptocurrency.

The 40-year-old Elon Musk disciple offered every citizen the equivalent of US$30 in a national wallet and has spent US$107 million of public money on digital coins in an effort to springboard the country out of poverty and into unimaginable wealth.

It was a Bitcoin bonanza. Some three million people – around half the population – created a "Chivo Wallet" and many, including Molina and her husband, invested their savings believing they would get rich quick.

Instead, the value of Bitcoin has plummeted 60 per cent, wiping away tens of millions of dollars worth of hopes, dreams and taxpayer money.

At the end of a winding road down to the surfer's paradise of El Zonte – rebranded Bitcoin Beach – a sign outside the Merendero El Teco restaurant reads: "No aceptamos Bitcoin."

Perched on a table overlooking the anthracite rocks and hipster surfers bobbing up and down in the waves, Molina explained how her family's finances spiralled out of control.

El Salvador's president Nayib Bukele offered every citizen the equivalent of $30 in a national wallet. Photo / 123RF

"During the pandemic, we bought a plot of land for US$5,000 not far from here," she said, looking up towards the verdant hillside.

"We had US$7,000 in savings to build a house, but my husband became obsessed with Bitcoin. He put US$1,000 in the account but it went down to US$400. I told him to withdraw, but he put more in because the president kept saying it would go up. It never did.

"We lost thousands and now can't afford a roof. We have a plot of land with just walls."

Molina, who has a 6-year-old daughter, earns just US$10 a day. Inflation in El Salvador was 7.5 per cent in May, but food prices are up by 13.5 per cent.

"We can't get a loan from the bank now. We've had to put our dream on pause. We're worried about what to eat each day, not about Bitcoin going up and down."

Further down the beach, at Canegue Cafe, 40-year-old Chris Mulhair has a very different message: "Bitcoin is the future. It's going to save humanity. It's the most powerful financial tool the human race has ever known."

Sipping a cappuccino from an artisanal clay mug, the elevator mechanic from San Francisco explained how he was "all in" and had converted "hundreds of thousands of dollars" into the digital currency.

"I came to Bitcoin Beach because I wanted to check it out. It's still at an early stage but it's better to be a year early than a day late."

He paid for his drink in US dollars.

Despite the ATMs on the street, offers at the petrol stations and straightforward payment procedures – much like Apple Pay, evidence shows that the public is not supportive of the project.

"At the start, lots of people would pay with Bitcoin, but now we get just one or two transactions a day," said Claudia Mejilla, who runs a small phone-case stall in the bustling Mercadito de Merliot.

Only 10 per cent of users continued making Bitcoin transactions on the app after spending their US$30 stipend, according to a survey published by the National Bureau of Economic Research.

The greater concern is public money.

Nayib Bukele has spent US$107 million of public money on digital coins. Photo / 123RF

Ricardo Castaneda Ancheta, the El Salvador lead for the Central American Institute for Fiscal Studies, told The Telegraph: "Bukele has spent US$107 million on Bitcoin. It is now worth US$55 million. That may not sound like a lot to lose for bigger countries, but in El Salvador that is the entire annual budget for the department of agriculture."

Bukele – known as "the millennial dictator" for his sweeping authoritarian rule – has doubled down on Bitcoin over the last year, telling his followers on Twitter that he trades it while naked and calling out foreign media for questioning his ambitions.

But the country is in a precarious financial position. In January it must pay an US$800 million sovereign bond. It is not clear how this money will be raised, and El Salvador is sliding towards a default, which could cause a financial crisis.

Nestled between Guatemala and Honduras on Central America's Pacific coast, El Salvador is blessed with stunning tropical scenery and cursed by historic gang violence.

In both 2015 and 2016, it was the world′s most violent country, and its capital, San Salvador, the scene of more murders than any other city. The murder rate was 103 per 100,000 people in 2015 – 100 times higher than in the UK.

Bukele, who was Mayor of San Salvador between 2015 and 2018, won the presidency in 2019 on a populist platform with his new political party, Nuevas Ideas, cherry picking policies from both the Left and Right.

In 2020, his administration "provided financial incentives to Salvadoran gangs MS-13 and 18th Street Gang (Barrio 18) to ensure that incidents of gang violence and the number of confirmed homicides remained low," according to the US Treasury.

In return, the gangs "agreed to provide political support to the Nuevas Ideas political party in upcoming elections," it added.

Bukele denies negotiating, but there has been a dramatic decrease in murders. The current rate is around 17 per 100,000.

But in March, the accord broke down.

Some 87 people were murdered in one weekend, and Bukele plunged the country into a state of emergency which still remains in place today.

In a remarkable show of force, more than 43,000 suspected gang members have been rounded up and imprisoned, with many of their rights suspended.

In an act of retaliation, three police officers were killed during a shootout in Santa Ana, a city 42 miles north-west of the capital. The suspects were rounded up and paraded in front of television cameras.

"What is coming to them is much greater, and they are going to pay dearly for having taken the lives of these three heroes," Bukele warned.

With the threat of further violence, rising prices and the looming risk of a debt default, Ancheta, the economist, is worried about what lies ahead for his country.

"It reminds me of the scene in Titanic. The music is still playing but the ship is sinking."