Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heart podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Tuesday, sept It's been one year since
Speaker 1: El Salvador adopted bitcoin as legal tender. Last September, the
Speaker 1: Central American nation made headlines for forging its own path
Speaker 1: as the first in the world to make the cryptocurrency
Speaker 1: an official part of its economy. According to tweets and
Speaker 1: statements from President Nai bo Kelly, the government has brought
Speaker 1: more than two thousand bitcoins so far. So what's the problem, Well,
Speaker 1: many of those purchases were at or near market highs.
Speaker 1: It was September twenty one, after all. Those price declines
Speaker 1: since mean that at least on people, El Salvador has
Speaker 1: lost more than half the value of its purchases so far,
Speaker 1: and surveys of both consumers and businesses show that most
Speaker 1: people in the country just aren't using bitcoin. Nonetheless, President
Speaker 1: Bokeley and government officials are adamant that the nation's strategy
Speaker 1: has expanded financial services to a larger segment of the
Speaker 1: population and encourage tourism. So what's the real story of bitcoin?
Speaker 1: In El Salvador. I'm joined now by Bloomberg reporter Mike
Speaker 1: McDonald for more. Are those birds they are? So? I have? Um,
Speaker 1: I have. There's like a flack of parakeets that live
Speaker 1: outside my apartment and they're they're like, yeah, tough, Okay.
Speaker 1: One of the most interesting countries in Central America, if
Speaker 1: you're a person who is even passingly interested in bitcoin,
Speaker 1: has got to be El Salvador. What's been going on
Speaker 1: in El Salvador over the past twelve months. Yeah, so
Speaker 1: a year ago El Salvador adopted bitcoin as legal tender
Speaker 1: alongside the dollar. El Salvador as a dollarized economy it
Speaker 1: has been for twenty years, and last year they announced
Speaker 1: and they started accepting bitcoin as official currency. So it's
Speaker 1: a currency that you can use just like you would
Speaker 1: a dollar, just like you would any other currency to
Speaker 1: pay for goods and services and buy goods and services
Speaker 1: in the country. So businesses, by law are required to
Speaker 1: accept it unless technologically unable to. But it became legal
Speaker 1: tender in Al Salvador about a year ago. You know,
Speaker 1: when the country adopted it, It was September one and
Speaker 1: else and bitcoin was really near record highs. It was
Speaker 1: around six that was trading around sixty thousand dollars per
Speaker 1: token at that time, so there was this sort of
Speaker 1: euphoria across the country. Everybody was downloading the government's bitcoin wallet,
Speaker 1: which the government launched a year ago. They were getting
Speaker 1: into bitcoin, They were trading bitcoin on their phones. The
Speaker 1: government wallet really makes it easy to switch between dollars
Speaker 1: and bitcoins. So you saw all these new sort of
Speaker 1: street day traders in El Salvador that we're that we're
Speaker 1: trading between bitcoin and the US dollar on their phone.
Speaker 1: They were rushing to the a t m s to
Speaker 1: convert their bitcoins two dollars and take out cash at
Speaker 1: these bitcoin a t m s around the country. At
Speaker 1: the beginning, there was sort of this euphoria about bitcoin
Speaker 1: in the country and everybody was really excited to see
Speaker 1: what would happen. I mean, at the time, it was
Speaker 1: really the biggest test for bitcoin as a currency in
Speaker 1: the world. This was the first country to ever do this,
Speaker 1: so everybody was really watching to see how the rollout
Speaker 1: went and really how this digital token could be used
Speaker 1: as as an official currency. What was the argument that
Speaker 1: El Salvador was making for why they were doing this.
Speaker 1: There were a couple. Since it's dollarized economy, they don't
Speaker 1: really control their own currency. They really rely on the
Speaker 1: FED for monetary policy. I mean, they really don't have
Speaker 1: any sort of central banking control of their own currency.
Speaker 1: One argue it was they shifted to bitcoins that they
Speaker 1: could shift away from relying on the Federal Reserve and
Speaker 1: US dollar monetary policy. Another argument was, you know, Al
Speaker 1: Salvador is a country that has that receives a large
Speaker 1: amount of remittances every year. There are a lot of
Speaker 1: All Salvadorians in the United States that work and live
Speaker 1: and send back tons of money every year. It's something
Speaker 1: like twenty percent of GDP in El Salvador. And they
Speaker 1: usually use Western Union or MoneyGram or one of these
Speaker 1: traditional money transfer services to send those remittances back to
Speaker 1: All Salvador. And those services charge fees for sending those remittances.
Speaker 1: And you know, depending on what sort of service you choose,
Speaker 1: the money can take three, maybe five business days to
Speaker 1: get there. So one argument was, you know, by adopting bitcoin,
Speaker 1: this would make it easier for Salvadorians living in Los
Speaker 1: Angeles or Texas or New York or wherever. It would
Speaker 1: make it cheaper and faster to sort of send the
Speaker 1: money from one person's wallet in in the United States
Speaker 1: to another person's wallet in Al Salvador. So, you know,
Speaker 1: one of the other main arguments was that this would
Speaker 1: save time and money on remittances, which is really a
Speaker 1: pillar for the economy and its hold. And let's talk
Speaker 1: about reminstances specifically, because you know, twenty of GDP is
Speaker 1: not a small amount of money going back. Having used
Speaker 1: services like money Ground Western Union to send money to
Speaker 1: the Caribbean where I'm from, It's not only that it
Speaker 1: can be slow, it can also be really expensive. And
Speaker 1: so if I remember correctly, like one of the arguments was, well,
Speaker 1: this isn't only gonna be faster, it's also going to
Speaker 1: be cheaper and more efficient. The thing is bitcoin volatility
Speaker 1: is you know feature bug. However you think about it,
Speaker 1: there can be wild swings in the currency. How was
Speaker 1: the plan to sort of manage the fact that by
Speaker 1: the time you start the transaction, by the time that
Speaker 1: transaction gets the the person, the price might have changed
Speaker 1: by fifteen You know, most of the souf it orders
Speaker 1: that are living in work in the United States are
Speaker 1: probably not starting off with bitcoin. They probably have dollars
Speaker 1: that they've made at their jobs in the US, and
Speaker 1: they have to go to an next change and buy
Speaker 1: the bitcoin and then get a wallet and then transfer
Speaker 1: the money to the wallet and then transfer it to
Speaker 1: their family members in El Salvador. And you know, from
Speaker 1: what we've seen over the past twelve months, people really
Speaker 1: aren't spending bitcoin in Al Salvador, so then their family
Speaker 1: member or their friend in Al Salvador would probably convert
Speaker 1: it to the US dollars, and there's a lot of
Speaker 1: price fluctuation that can happen in that time frame. There
Speaker 1: are also a lot of fees associated with that whole
Speaker 1: long process, so it's not even always that much cheaper.
Speaker 1: I mean, the you know, the fees for bitcoin kind
Speaker 1: of vary for sending it, based on you know, usage
Speaker 1: and a bunch of other factors, so you know, sometimes
Speaker 1: it is cheaper, sometimes it's not. But you know, it
Speaker 1: hasn't really translated into a large amount of remittances being
Speaker 1: sent via bitcoin either. The Central Bank Inel Salvador said
Speaker 1: a couple of months ago that it's only about two
Speaker 1: percent a little less than two percent of remittances that
Speaker 1: have come via digital wallets, so most people still are
Speaker 1: using the traditional services like money Graham and Western Union,
Speaker 1: and these are companies too. They have also come up
Speaker 1: with their own digital wallets, so to speak, to try
Speaker 1: and compete with you know, bitcoin and stable coins and
Speaker 1: some of these other cryptocurrencies. You know, they're trying to
Speaker 1: make it cheaper and faster with their own versions of
Speaker 1: digital wallets to make it easier for customers on both ends. So,
Speaker 1: you know, we haven't really seen a sort of mass
Speaker 1: movement from traditional money services to bitcoin for transferring remittances
Speaker 1: from the U S t S. Salador. You've reported over
Speaker 1: the course of the past twelve months on the fact that,
Speaker 1: you know, Bokeley is historically popular leader in the country.
Speaker 1: He controls not just sentiment, but like functionally has a
Speaker 1: lot of influence and exerts a lot of control over
Speaker 1: other arms of government and of course the central bank. However,
Speaker 1: the bitcoin thing doesn't pull well for him, right Like
Speaker 1: kind of around the time that this was rolling out,
Speaker 1: there were even protests, some of them turned a little
Speaker 1: bit violent. What explains the disconnect between this history really
Speaker 1: popular leader on this historically unpopular policy. Yeah, it's really interesting.
Speaker 1: You know, it's popular for a lot of reasons, and
Speaker 1: bitcoin is is kind of the one thorn in his side.
Speaker 1: I mean, it's the one thing that the opposition parties
Speaker 1: in Al Salvador have really latched onto because it's sort
Speaker 1: of the one thing that people are really upset about
Speaker 1: him with. You know, he's popular. He's cracked out on
Speaker 1: gangs recently, He's built a couple of new hospitals, he's
Speaker 1: improved education. He has some of these money transfer services
Speaker 1: from the government to the you know, very the poorest
Speaker 1: households in Al Salvador. So so those are some of
Speaker 1: the reasons why he's he's so popular with bitcoin. You know,
Speaker 1: it was a big change, really fast. He announced this
Speaker 1: in June of one, with the law taking effect in
Speaker 1: September one. It was really only three months. It's you know,
Speaker 1: shifting from the US dollar, you know, sort of a physical,
Speaker 1: hard feat currency to a digital dollar. In a country
Speaker 1: where a lot of people outside the capital city don't
Speaker 1: have smartphones or aren't familiar with the technology, or don't
Speaker 1: really understand cryptocurrencies. A lot of homes may not even
Speaker 1: have access to internet. A lot of businesses outside the
Speaker 1: capital city don't have access to internet, so so making
Speaker 1: transactions in a digital currency is scary. The very fast
Speaker 1: pace which this happened too, I think spooked a lot
Speaker 1: of people. I think once it rolled out. You know,
Speaker 1: at the very beginning, the price of bitcoin was was
Speaker 1: very high. It was in the fifty thousand range in
Speaker 1: September one, and then it quickly went up to sixty thousand.
Speaker 1: I think it was about sixty thousand for a while.
Speaker 1: And for the first couple of months, there was this
Speaker 1: excitement and people thought, oh, well, my money is just
Speaker 1: always going to go up. And then ever since then
Speaker 1: it's gone down. I mean, now you know we're talking
Speaker 1: about bitcoin has been at twenty thousand for for months now,
Speaker 1: and so I think, you know, a lot of that
Speaker 1: early excitement really fizzled out. People who started using bitcoin
Speaker 1: last year at fifty thousand and went up to sixty thousand,
Speaker 1: and now it's down to twenty thousand. I think they,
Speaker 1: you know, they opened their achieval app, which is the
Speaker 1: government's digital wallet, and look at their money and like, oh, well,
Speaker 1: I'm losing money on this. This is really silly. The
Speaker 1: volatility has really scared people away. If there is sort
Speaker 1: of one saving grace, you know, not a lot of
Speaker 1: people on a Salvador. It's not like people poured their
Speaker 1: life savings into bitcoin because there wasn't this mass adoption.
Speaker 1: It really saved the economy as a whole from from
Speaker 1: this crypto winter and this bear market that we're in,
Speaker 1: but it's also sort of dampened sentiment for using it
Speaker 1: as an actual currency because of the volatility. Well to
Speaker 1: your points about the absence of enthusiasm, there's a brilliant
Speaker 1: quote that you have in your story from Laura Android,
Speaker 1: who's the director of you know, one of the universities
Speaker 1: there and who did a poll that's sort to find
Speaker 1: out if people are actually using bitcoin, and the quotes is,
Speaker 1: if you go to any markets in El Salvador, you're
Speaker 1: more likely to receive an insult than be able to
Speaker 1: purchase something in bitcoin, which you know feels feels pretty
Speaker 1: telling of of the way things are. There is one
Speaker 1: area that by any metric, though, does look like there's
Speaker 1: been some success, and that's sort of foreign investment and tourism.
Speaker 1: But what are some of the specifics that you've seen
Speaker 1: that are actually making a difference in the country. Yeah,
Speaker 1: there have been a lot of bitcoiners that have visited
Speaker 1: the country over the past year, there's a lot of
Speaker 1: curiosity to see how this works. El Salvador is on
Speaker 1: pace this year to actually surpass pre pandemic levels of
Speaker 1: tourist visits. I think they might have already done it
Speaker 1: already and we're only in September now. There is a
Speaker 1: lot of curiosity. There's been a couple bitcoin events that
Speaker 1: have been held in El Salvador over the past year.
Speaker 1: The Latin America Bitcoin Conference was one. They've had a
Speaker 1: couple other blockchain events as well. They're going to have
Speaker 1: another one this November. Bitcoin Beach has attracted a lot
Speaker 1: of people. There's there's Bitcoin Beach is sort of the
Speaker 1: pilot program where this all started. You know. There there
Speaker 1: have been several companies to some and and some pretty
Speaker 1: prominent crypto companies like bitfin x, which is a crypto exchange,
Speaker 1: which is preparing to open up an office there. I
Speaker 1: spoke with some other crypto companies, a couple of different exchanges,
Speaker 1: and a couple of different banking and lending crypto platforms,
Speaker 1: and they've seen a large uptick of users in El
Speaker 1: Salvadore over the past year, so for them, been good
Speaker 1: for business. So you know, there is this sort of
Speaker 1: curiosity to see how things are going in Al Salvador.
Speaker 1: And and there are members of the crypto community from
Speaker 1: from legitimate large crypto companies that are are setting up
Speaker 1: shop in Al Salvador. And and there is this bet
Speaker 1: on the part of the government where they're kind of like, well,
Speaker 1: let's see if we can attract this industry here and
Speaker 1: be sort of a regional hub for this highly technological
Speaker 1: industry for Latin America. So that's so there is there's
Speaker 1: a little bit about a little bit of that, and
Speaker 1: you are seeing evidence of it. I mean, you can't
Speaker 1: see it in the numbers. Up next, more from Broomberg
Speaker 1: Reports and Mike McDonald on El Salvador's economic future as
Speaker 1: an ardent supporter of crypto. So we've got a let's say,
Speaker 1: mostly indifferent population, we've got a mostly enthusiastic kind of
Speaker 1: foreign investor in tourist space. There is one constituency that
Speaker 1: I would describe as actively hostile to El Salvador's bitcoin experiments,
Speaker 1: and that's like the multinational organizations, the I m F,
Speaker 1: the World banks. It's also like the rating agencies. What's
Speaker 1: been going on in that front before El Salvador announced
Speaker 1: that they were going to adopt bitcoin as legal tender.
Speaker 1: They were negotiating a program with the International Monetary Fund.
Speaker 1: The government has really high debt levels and they have
Speaker 1: a couple really big bond payments coming up that they're
Speaker 1: going to have to pay to bond holders. So they
Speaker 1: were negotiating this one point three billion dollar program with
Speaker 1: the International Monetary Fund essentially alone, and then in exchange
Speaker 1: for that, they would adopt policies, you know, more fiscally
Speaker 1: responsible policies to sort of narrow their fiscal deficit and
Speaker 1: bring debt levels down. But the i m F has
Speaker 1: really pushed back against this experiment, and we haven't seen
Speaker 1: that program actually happen yet. I mean, they've been negotiating
Speaker 1: this now for maybe two years, and this experiment really
Speaker 1: has cost the country a program at one point three
Speaker 1: billion dollar program with the International Monetary Fund. You know,
Speaker 1: the World Bank has held off on some lending because
Speaker 1: of this. I think they even rejected a request from
Speaker 1: a sob it or to help with the rollout initially.
Speaker 1: I think they've sort of backed off on that, and
Speaker 1: I think they did provide some assistance eventually, but there
Speaker 1: has been this pushback from the I m F. A
Speaker 1: little bit from the World Bank and from the from
Speaker 1: bondholders as well. I mean, you've you've seen Moodies published
Speaker 1: several pieces warning of the dangers of the volatility of bitcoin.
Speaker 1: The government has been buying bitcoin and they've lost a
Speaker 1: lot of money so far on those purchases. I think
Speaker 1: they have unrealized losses of about sixty million dollars on
Speaker 1: roughly a hundred million dollars in bitcoin purchases. So it
Speaker 1: has hurt public finances and that's something that the International
Speaker 1: Monetary Fund, the World Bank, and these rating diseases, especially Moodies,
Speaker 1: have really brought to light. Given this what you could
Speaker 1: sort of fairly describe as a mixed environment for this,
Speaker 1: you know, great experiments. What's next for buc He has
Speaker 1: shifted gears. Ever since March there was a there was
Speaker 1: a series of killings in March, gang related killings, you know,
Speaker 1: Saltore in March, and ever since then, the government's focus
Speaker 1: has been on finding gangsters, resting them and putting him
Speaker 1: in jail. I think there rest like forty thousand gangsters
Speaker 1: since March, or alleged gangsters, I should say, because there's
Speaker 1: some pushback as to whether or not some of these
Speaker 1: people are innocent or not. You know, the laser eyes
Speaker 1: are gone from his Twitter profile. I think he took
Speaker 1: them down a month or two ago, So there has
Speaker 1: been a bit of a shift in focus in terms
Speaker 1: of what the government is focusing on. He still is
Speaker 1: meeting with with representatives from the cryptocurrency community. He met
Speaker 1: with the CEO of Bank to the Future, which is
Speaker 1: a cryptocurrency company, a couple of weeks ago. You know,
Speaker 1: the CEO of Finance was there, I want to say,
Speaker 1: in May, June or some sometime in the past few months.
Speaker 1: So he is sort of keeping this up, this interest
Speaker 1: in the cryptocurrency community. But you know, I think the
Speaker 1: core focus of the government has has really shifted that.
Speaker 1: You know, there are plans still to issue a blockchain bond,
Speaker 1: which would be like a bitcoin back bond, that's been delayed.
Speaker 1: You know, they had initially announced that they were going
Speaker 1: to issue it in March, were now in September, and
Speaker 1: there's talk that maybe they'll do it at the end
Speaker 1: of the year. But you know, this is a government
Speaker 1: that that moves their deadlines quite frequently, so you know,
Speaker 1: it may happen by the end of the year. It
Speaker 1: may not. They still haven't presented a digital securities law,
Speaker 1: which is the legislation they need to really underpin this,
Speaker 1: this blockchain bond issuance. Mike, as a closing question, you know,
Speaker 1: you're one of the people that has actually you've gone
Speaker 1: to elslvdoor a bunch of different times. You have tried
Speaker 1: to navigate the country just by using bitcoin. What about
Speaker 1: that system would have to get better for it to
Speaker 1: really be practical rather than gimmicky. You know, I think
Speaker 1: speed is a big one. When you land there, it's
Speaker 1: hard to find places that will actually accept it. You know,
Speaker 1: it's a minority of businesses that will accept bitcoin. So
Speaker 1: finding a place that will actually accept your bitcoin in
Speaker 1: exchange for services or goods or whatever is is a
Speaker 1: bit of a challenge. There are some that will that
Speaker 1: will accept it, and I found that, you know, at
Speaker 1: those places that do accept that, there's a lot of
Speaker 1: bugs in the system that transactions from my wallet to
Speaker 1: their wallet aren't always smooth. You know, they get blocked,
Speaker 1: or sometimes there's no internet service and you're sort of
Speaker 1: standing there waiting for internet service to come back. I
Speaker 1: had a transaction at one of my hotels that took
Speaker 1: I think overnight to process. I paid for my room.
Speaker 1: It was like, I don't know, Wednesday or something like that,
Speaker 1: and then I had to come back like the following
Speaker 1: Thursday evening to see if the payment actually went through,
Speaker 1: And so we were all sort of like waiting to see,
Speaker 1: you know, with this work, would it not work? There
Speaker 1: are a lot of problems like that where it's just
Speaker 1: it's slow. I mean it's it's slow and it's clunky,
Speaker 1: and it's it's still not faster than at least not
Speaker 1: for the consumer anyway than me just whipping out of
Speaker 1: credit card and swiping it and going about my way. Well,
Speaker 1: thank you so much for sharing your perspective, Mike, and
Speaker 1: I always appreciate you being on the show. Yeah, thank you, Stacy,
Speaker 1: appreciate it. You can find more of Mike McDonald's reporting
Speaker 1: on the Bloomberg Terminal on Bloomberg dot com and on Twitter.
Speaker 1: He's at m D McDonald That's m D M C
Speaker 1: D O N A L D. On the next episode
Speaker 1: of Bloomberg Crypto, it's Merge Week, and my colleagues David
Speaker 1: pan Olga Karif, and Dave Litta hosted a Twitter spaces
Speaker 1: dedicated to the coming changes to the Etherium blockchain. You'll
Speaker 1: hear highlights from their conversation. This is Bloomberg Crypto, a
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Speaker 1: Our senior producer is Janet Babin. Our producer is Sharon Burriro.
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Speaker 1: Original music by Leo Sidron. I'm Stacy Maria Shmal. We'll
Speaker 1: be back tomorrow