If there is one thing El Salvador’s millennial president Nayib Bukele is known for, it is for making headlines. Whether he’s replacing judges on the supreme court or calling himself “The Coolest Dictator in the World” to mock critics both at home and abroad, there always seems to be something new about him making the front news across the globe. This time around, Mr.Bukele once again captured the world’s attention as this past November 20th, the baseball cap-loving president announced his ambitious plan to build the world’s first “Bitcoin City.”
Way back in January 1st, 2001, under the Monetary Integration Act, the Salvadoran colón soon found itself circulating alongside the U.S. dollar. The purpose of the dollarization was one of the series of measures to spur economic growth after the country’s civil war, which lasted from 1980 to 1992. As the years went by, the use of the colón began to disappear. Nowadays, it’s possible to see the old currency in museums, a relic of what it once was. A return to this currency of bygone days would spell disaster for El Salvador, as more than 75% of the country’s national debt is in the form of the U.S. dollar.
This past September 7th, 2021, Bitcoin achieved status as legal tender in the Central American nation due to the passing of the Bitcoin Law by the Legislative Assembly of El Salvador on June 8th, 2021. This law means that now Salvadoreans can pay for goods and services using the cryptocurrency above alongside the U.S. dollar. The move was met with both excitement and fear by Salvadoreans. Several Salvadoreans expressed their lack of confidence in the controversial law as they marched on the streets of San Salvador. Reports even point to one protester setting fire to one of the new Chivo (the Bitcoin digital wallet app launched by the government) ATM Bitcoin machines.
In Mizata, a beach 80km southwest of San Salvador, cryptocurrency enthusiasts gathered to celebrate the end of this year’s Labitconf. The event, considered one of Latin America’s most significant cryptocurrency and blockchain conferences, celebrated its 9th edition this year. In the presence of experts and millionaires, it was here that Mr.Bukele found the perfect place to prove to the world his commitment towards Bitcoin for a second time as he announced his project to build a “Bitcoin City” in the eastern region of El Salvador.
Mr. Bukele’s project involves building the city in the coastal city of Conchagua, where a volcano with the same name looms over the horizon. This volcano proves crucial to the president’s plan, as the city would receive geothermal power from the mountain. In addition to providing citizens with much-needed energy, the volcano would also power Bitcoin mining machines. As a previous step to failproof its plan, the Salvadorean government is already testing a Bitcoin mining project with the help of another geothermal power plant located next to the Tecapa volcano.
Mr. Bukele’s Bitcoin City would not levy any taxes except for value-added tax (VAT) or IVA in Spanish. To fuel his vision to transform El Salvador into a financial center of the world, half of the levies will fund the bitcoin bonds needed to build the city. The other half will then pay for services required to maintain the city in tip-top shape. Mr.Bukele compared his project to cities built by Alexander the Great, claiming that, “If you want bitcoin to spread over the world, we should build some Alexandrias.”
El Salvador’s Bitcoin City aims to be 100% ecological and oriented towards green technologies with a design in mind to attract foreign investment. Mr.Bukele claimed the city would provide, among many others, digital education, technology, and sustainable public transport. In another comparison to Alexander the Great, the Twitter-savvy president announced that the city will have a circular design. From the air, its central plaza will resemble a bitcoin symbol. Some of its many features shall include an airport, commercial and residential areas, and a port.
The Salvadorean government plans to issue the initial bonds in 2022, and 60 days after the financing is ready, the construction will begin. Samson Mow, chief strategy officer of blockchain technology provider Blockstream and supporter of Mr. Bukele’s bitcoin bonds, told the cheering crowd that El Salvador would become “America’s Singapour.” Mr.Mow also claimed that the first 10-year issue, known as “volcano bond,” would have an estimated worth of $1 billion, all backed by bitcoin and with a coupon of 6.5%. El Salvador would then start selling parts of the bitcoin used to fund the bond and give investors an “additional coupon.” Mr. Mow explained that the plans are to issue the bond on the “liquid network,” a bitcoin sidechain network. For the process to be easier and more secure, the Salvadorean government is working on a securities law, with the first license to operate and exchange going to the crypto exchange Bitfinex.
However, despite Mr. Bukele’s popularity in El Salvador soaring, polls show the Salvadorans skepticism regarding the president’s attachment to bitcoin. The millennial president also faces much opposition both in El Salvador and abroad. On July 1st, a little less than a month after the Bitcoin Law went into effect, the U.S. State Department published the Engel list, which featured a group of corrupt and anti-democratic individuals from the Northern Triangle of Central America-that is, El Salvador, Guatemala, and Honduras. 14 Salvadoreans featured on the list, and several of those have close ties to Mr.Bukele. His cabinet chief, the minister of labor, the vice minister of security, and his legal adviser are among the list.
Mr.Bukele also has caused concern with some of his more authoritarian tendencies. His critics state that his attempts to concentrate power are undermining El Salvador’s already weak institutions. For example, and more recently, top officials from the Central American nation ruled that Mr.Bukele could serve two consecutive terms, swinging the door wide open for the president to seek re-election in 2024. Many critics called the move a coup, as the decision could make Mr.Bukele the first president to serve more than five years in office since the 50s. The young Salvadorean’s government also presented a plan for a constitutional reform that aims to extend the presidential term from five years to six, among several other steps.
Only time will tell whether Mr. Bukele’s Bitcoin City will sink or swim. As many benefits as his plan could bring to the Central American nation, the allegations of corruption against him and his increasingly worrisome behavior cause skepticism regarding his plans of Alexandrian proportions.