China To Save El-Salvador In Crypto Crisis

December 29, 2022 World Blockchain

As the end-of-time memes about the bankruptcy of cryptocurrency exchange FTX and the decline in the price of bitcoin circulate, one person has surprisingly remained silent.

In earlier crashes, the president of El Salvador President Bukele, who decided to make bitcoin a legal currency a year ago, encourage his followers to “buy the dip”.But lately, he has remained silent and has even deleted some of the memes he had on his Twitter page which were urging his followers to still buy bitcoin.

He disclosed the signing of a free trade agreement with China on the same day that FTX declared liquidity problems. His vice-president confirmed that as part of the deal, China promised to purchase the nation’s $21 billion in foreign debt.

El-Salvado a country of 6.5 million currently in financial turmoil. January 2023, the government has to pay the European Union $688m. At the start of 2022, the president said El-Salvado would be debt free with the help of bitcoin-denominated bonds and even said he believes strongly by the end of the year bitcoin will be trading at $100,000 per bitcoin.

However, the so-called “volcano bonds” never materialized, and the bitcoin price now floats around $16,000. The tracking system of the president’s cryptocurrency trade believes he has spent more than $107 million on 2,381 bitcoin. That investment is now worth slightly more than $40 million.

“If the president believes he can create a special and advanced political economy while opposing IMF advice, his thoughts have failed,” a Salvadoran economist said. “There are no easy paths to economic redemption, nor are there any shortcuts.”

The bitcoin losses are minor in comparison to the overall debt, but the president’s determination to ignore IMF advice and reverse his bitcoin policy has spooked international markets. When credit agencies downgraded El Salvador’s credit rating in January, The President tweeted, ” El Salvador DGAF,” which literally means “I don’t care.”

New data now predicts that the country will default on its loans starting January 2023.
With inflation on the rise, a recession lurking, and the debt level deteriorating, El Salvador is unable to print money because the nation accepted the US dollar as its legal tender in 2001. Instead, the administration has used its reserves to plug the fiscal gap.

Accepting debt financing from China, on the other hand, would mark a decisive break from the US and bring the nation closer to China, and Russia”It would imply a complete reorientation of El Salvadoran foreign policy, “El-Salvado’s economist.

Since El Salvador severed ties with Taiwan in 2018, China has accepted to construct a stadium and a library in the country, but plans to transform the northern part of the country’s port into a trading center have been delayed.

Closer ties with China may also suit the president’s ambition. He has been heavily criticized by the United States and Europe for pursuing re-election in 2024, which is against the country’s laws.

With a favorability rating of around 90%, Bukele is still Latin America’s most-liked president, But as a bitcoin bettor, Bukele doesn’t know when to hold or fold. Increased ties with China would be yet another gamble.