The President of El Salvador seeks re-election. How will El Salvador's "fiat currency" Bitcoin develop?

[TL;DR]

• El Salvador president Nayib Bukele announced plans to run for a second term.

• This is after the supreme court passed a law contrary to El Salvador Constitution permitting re-election.

• Human rights groups condemn such actions as a breakdown of El Salvadoran Democracy.

• On the one hand, it might be the redemption of the floundering ‘Bitcoin as a legal tender campaign.’

• Conversely, it might antagonize the very investors the Central American country needs to thrive.

On the 15th of September, the pro-Bitcoin leader of El Salvador, Nayib Bukele, announced his intentions to rerun as the president for a second term. However, this goes against several points in the El Salvadoran constitution and has raised several eyebrows among international bodies. It has further solidified several suspicions and accusations against the nation's government.

As it stands, Bukele’s announcement has raised questions about the future of El-Salvador’s Bitcoin adoption campaign.

Bukele announced his intentions to run for a second term in a speech he made on El Salvador’s independence day. The news was met with wild applause by those present, but the wider world was not so enthusiastic. Bukele's move reportedly violates the central American country’s constitution, prohibiting a president from ruling for consecutive terms. In fact, his decision was only made possible by a supreme court ruling permitting the president’s action. Nayib Bukele opined that El Salvador should be more open to presidents' re-election like more developed nations.

Source: Reuters

Human Rights Groups Condemn El Salvador President’s Announcement.

However, several detractors of the president’s actions have spoken up, including human rights groups and the US state department. According to the US state department, this move is one more nail in the coffin of the president’s anti-democracy modus operandi.

A human rights activist tweeted that the breakdown of the El Salvadoran constitution is predictable. This he attributed to ideological bias, geopolitical interest, and cowardice on many sides.

El Salvador and Bitcoin History

El Salvador shot to the crypto limelight when it passed the law that made Bitcoin a legal tender in June 2021. In a world where central governments were either distrustful of or struggling to accept the nascent asset class, El Salvador embraced it with both hands. To facilitate the adoption of the asset class, the government built Bitcoin ATMs and launched a Chivo wallet. It further approved a multi-million dollar trust fund to support the program. President Bukele had chosen to adopt crypto for three main reasons.

1. To decrease the cost of remittances, which make up more than 24% of the country’s GDP

2. Spread financial inclusion in a nation where 70% of adults do not have a bank account

3. Attract international investors and entrepreneurs.

However, the pro-Bitcoin nation has not succeeded in any one of these goals as one might have expected. For one, as of January this year, only 2% of remittances were made in Bitcoin. This is because using digital currency for remittance costs more than was anticipated. It involved going through a roundabout process that involved swapping fiat for Bitcoin on exchanges, an expensive process. In comparison, Western Union's mobile money is much cheaper.

As for the financial inclusion plan, 16% more people opened a Chivo wallet than those with bank accounts. However, after cashing out the free Bitcoin the government deposited, most people never used it again. Besides, the ease of opening such accounts attracted numerous nefarious actors increasing identity theft cases in the El Salvadoran economy.

And Finally, the goal of attracting global investors has not gone as well as planned. It has mostly attracted suspicious firms like BitFinex securities which US investors are banned from using.

The Bitcoin initiative in El Salvador has suffered greatly due to poor planning and implementation of blockchain strategies.

Source: Diario El Salvador

How will Bukele’s reelection affect El Salvador's fiat currency & Bitcoin’s development?

President Nayib Bukele has been a strong advocate of Bitcoin despite its minimal success in El Salvador. With his reign ending in two years, what would happen to the Bitcoin initiative after all the funds were invested?

His announcement might give a clue to answer this question.

A ree-election might allow El Salvador’s pro-Bitcoin president to redeem the Bitcoin Initiative.

On the pro side, if the 41-year-old president gets reelected, it could give him another chance to redeem his Bitcoin adventure. Perhaps with a better plan, Bukele’s goals for the campaign might come to fruition.

Some have suggested leveraging his blockchain strategy to properly implement Health care, public administration, registration, and supply chain.

He could use the second chance to better train the masses in using Chivo wallets. Perhaps its security would be stronger and other factors that would aid wider adoption of the currency can be implemented.

All in all, it might be a chance for El Salvador to correct all the mistakes it had made while implementing the Bitcoin law.

Perceived Political Unrest Might Harm Investment Opportunities in El Salvador

On the con side, however, The El Salvadoran president’s move may antagonize the success of Bitcoin adoption in the country instead.

Human Rights Watch published a report about Human rights violations taking place in the Republic of El Salvador. According to the report, Bukele’s administration arbitrarily violated human rights in its war against gangs. It claimed short-term disappearances and arbitrary detention based on people’s appearance and social background were common. The administration reportedly detained over 50,000 in August due to a crackdown against gangs.

Furthermore, passing a law contrary to the nation’s constitution in favor of the president suggests a bias. One that international communities have tagged “a power grab.” The HRW report also found that democratic institutions in the country are weakened by Bukele’s rule with few checks on the president’s power. Hence, the US state department stated that president Nayib’s recent announcement is a decline in democracy damaging to the country’s relationship with the US. These cannot be favorable to Bukele's goal of attracting investors using Bitcoin adoption. If there is political unrest in a nation, it always adversely affects the economy.

In Conclusion

In spite of the uproar President Bukele’s announcement stirred up in some quarters, the president remains unconcerned. According to Bukele, the decision does not lie in the hands of the world but in El Salvadorans. So far, the citizens seem to have no problem with the middle-aged president’s plans. It is unclear what the state of things means for the future of the Bitcoin-loving president and the republic of El Salvador.

Author: M. Olatunji, Gate.io Researcher

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