Bitcoin in El Salvador: Why Would Cypherpunks Support Government-Mandated Bitcoin Adoption? - Ep. 375

Nelson Rauda, Salvadoran journalist for El Faro, comes to talk about the impact of Bitcoin in El Salvador, the needs of Salvadoran people, Bitcoin City and the Bitcoin Bond, and much more.

Show highlights:

Nelson’s story and how he began covering BTC
what kind of politician and president Nayib Bukele was before BTC
what the financial reality was for Salvadoran people before the implementation of BTC
the reasons for the high rates of unbanked people in El Salvador
how Bukele changed the monetary policy with what Rauda says was very little discussion
why Rauda believes the BTC law is not meant for Salvadorans, but instead is a PR stunt
how people reacted after the announcement of BTC as legal tender, and how it resembled the dollarization of the economy in 2001
how Nelson did not even understand BTC at the moment of the announcement and how he says there was not an effort from the government to educate the population
whether BTC was successful in attracting investments and tourism, and how there’s no hard data about it
why Nelson believes Bukele was trying to hide the scandals when he adopted BTC
whether BTC has been used as a PR stunt
why bitcoiners are enthusiastic about an authoritarian government adopting BTC as legal tender
how Bukele might be undermining his own authority by adopting BTC, a type of money that is not controlled by a state
whether the Chivo wallet is a surveillance tool
why Nelson believes BTC does not represent a solution for the needs of average Salvadoran people
whether the $30 dollar initial gift to download the BTC wallet was seen as just another subsidy
the status of Bitcoin City and how Nelson believes it represents the most spectacular PR stunt from Bukele’s administration
how the expensive prices of electricity in El Salvador make the country not the best place for mining
the significance of Bitcoin Beach
what the BTC bond is, what Bukele tried to achieve with it, and why it has been postponed
whether El Salvador will default on its debt and what the impact of the BTC price has on the national finances and on how Salvadorans perceive Bitcoin
how Nelson believes people in El Salvador do not have political freedom and how it contradicts the narrative of financial freedom that BTC aims to provide
what Nelson thinks about Bitcoin and whether governments should adopt it as legal tender

Bitcoin Bond:

Bitcoin City:

https://www.dezeen.com/2022/05/12/bitcoin-city-el-salvador-president-nayib-bukele/#:~:text=Bitcoin%20City%20is%20planned%20for,from%20the%20nearby%20Conchagua%20volcano

Episode Transcript

Laura Shin:

Hello, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host Laura Shin author of the Cryptopians. I started covering crypto seven years ago and as a senior editor at Forbes was the first mainstream media reporter to cover crypto currency full time. This is the July 19, 2022 episode of Unchained.

Every other Tuesday, Unchained hosts the Chopping Block where crypto insiders Haseeb Qureshi, Tom Schmidt, Robert Leshner and Tarun Chitra chop it up about the latest news in the digital asset industry. You can catch the latest episode on YouTube and on all podcast platforms.

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Today’s topic is El Salvador’s use of bitcoin. Here to discuss is Nelson Rauda journalist at El Faro in El Salvador. Welcome Nelson.

Nelson Rauda:

Hi, Laura. Thank you so much for having me.

Laura Shin:
In the last year, El Salvador made some historic news by becoming the first country to adopt bitcoin as legal tender. We’re going to dive into everything that’s happened since then but first, let’s set some context. Listeners of this show may not be familiar with you or your work. So, before bitcoin became part of your coverage, what kind of journalist were you?

Nelson Rauda:

Well, I’ve been a journalist since 2013. I’ve been doing this for nine years and I started out my career covering judiciary. There’s always a lot of judiciary things going on in El Salvador. So, I started with the murder beat covering gang violence, covering police, covering the attorney general’s office, the Supreme Court, that kind of stuff. And then, I transferred to El Faro seven years ago, which is an independent newspaper. Smaller newspaper, so you kind of have to do a jack of all trades kind of thing there.

So, I started out doing more political things and more things related to immigration and basically focusing on human rights violations, and I was doing a lot of coverage of Civil War trials in El Salvador. So, the first time I heard the word bitcoin or the word crypto was from Mister Jack Maller in a Miami conference in 2021, and I tried to brush it off because I’m used to now…I’m really used to President Bukele’s antics by now. It’s been three years.

But five days later, I was at the legislative assembly watching a midnight session after bitcoin law was rushed and approved. So, it was a really fast learning curve and I’ve been covering the implementation of the bitcoin law for a year now.

Laura Shin:
So, you said that the first time you heard it was Jack Maller saying the word at the conference. So, you were just tuning in because President Nayib Bukele was there?

Nelson Rauda:

I did it when I saw it afterwards on social media and it was a surreal experience to hear from a foreigner why this gringo young kid telling us why six billion of us will have…the whole monetary system of our country was going to change overnight essentially. So, that was a pretty…I would not recommend that kind of shock doctrine or shock therapy.

Laura Shin:

And you talked about President Bukele’s antics as you called them. So, before bitcoin became part of his identity, what kind of politician and president was Nayib Bukele?

Nelson Rauda:

It was kind of Bolsonaro meets Trump but really into technology kind of guy. That’s the best description I would give. He’s a really like a populist. Like a traditional Latin American populist, het is really popular in El Salvador. He won the presidency by a landslide in 2019. He won because he copied the sentiment against what people might call the drain the swamp kind of narrative – We’re going to clean the politics. I come from these same parties but I’m not one of them. I’m of the people although I am a millionaire. That kind of populist kind of thing.

So, it seems at the beginning of his presidency, we became aware, and we saw more and more of his authoritarian tendencies. I think people really saw him in this series of photos when he invaded villages of the assembly with the army and tried to pressure the congressmen and women to approve a loan for security, for his security program. So, we started seeing more and more of this, but bitcoin law was approved in June 2021. It was announced in June of 2021. Approved a couple days later. Now it came into effect in September.

Before that, there was an essential element that it’s that he won the super majority in the legislative assembly. His party controlled the legislative assembly, which allowed him to effectively control two of the three branches of the state, and then with that power, he illegally acquired control of the Supreme Court in El Salvador. He demoted the constitutional court. He demoted the attorney general. So, essentially there was no democracy’s counter balances. You know, checks and balances

That’s what allowed for the decisions as the bitcoin law to pass as swiftly and many people don’t realize that. I’ve actually talked about this with several foreigners because now there’s a lot of interest from the crypto war in El Salvador. They say well, you need a strong man to do that, and I said yeah, but that’s not democratic and that was not allowed by Salvadoran law itself.

Laura Shin:

So, let’s also just flesh out what the picture of life in El Salvador was pre bitcoin from a financial situation. What would you say was the financial reality for everyday Salvadorans pre bitcoin?

Nelson Rauda:

Maybe I’m going ahead of myself here, but I don’t think it’s changed that much. Unfortunately the population basically is poor, lives with less than 10 dollars a day, which is I think they measured…most multi-lateral organizations use to measure poverty. And there’s a lot of talk about them banking their bank and there’s a lot of that talk from the narrative of the government of the president saying oh, yes, only 30 percent of Salvadorans have bank accounts and 70 percent of the population doesn’t have, which is true. It has been measured like that. But I would say that there’s a reason behind that. If not just lack of access to banking institutions, the reason is the economy itself.

People usually earn what they use. They don’t have savings accounts because they are essentially useless most of the time and most of the people don’t have anything to save. So, if you gave every Salvadoran a savings account, you would give them a tool of course but most of them use what they earn, what they need every day and don’t have the resources to have like investments or stashing away money to use in some other thing. Or if it’s not really like that, the majority of the population, the transactions happen in cash because it’s essentially a subsistence economy.

Laura Shin:

Well, okay. So, you alluded to kind of just how quickly everything happened in terms of El Salvador first proposing and then adopting this bitcoin law. So, describe a little bit what that experience was like. You talked about how it was a steep learning curve for you. Just give us more detail on what that time in your life looked like.

Nelson Rauda:

I think for all of us. this was a Saturday and all of a sudden, we’re on Saturday scrolling through Twitter or social media and we see this dude Jack Mallers who was very histrionic in that appearance. He pulled on the jersey of a Salvadorian national soccer team, and he cried on stage, and he said he almost pissed his pants because of the invitation of President Bukele. Then President Bukele himself appears on the big screen and says we are adopting bitcoin as legal tender and nobody knows what bitcoin is. I mean, I hadn’t heard of it ever.

This was a Monday, the bitcoin fever of 2020 to 2021, right, but here in El Salvador, it was just marginal thing. Maybe a couple people knew about it. And all of a sudden, we saw that and as I told you, I thought it was going to be one of those things that Bukele does and he’s histrionic and he looks for the rewards on social media in terms of likes and visibility. I didn’t think I had to put much attention to it. I just went on with my Saturday, whatever, but then three days later, we were at the legislative assembly.

I remember distinctively because I was watching a soccer game of the Salvadoran national team, and then, they say we’re going to pass bitcoin law tonight. So, my editor calls me and says hey, can you get down there. Okay. Stop watching the game. It was funny why I mentioned the game because this is what I wrote. The soccer match has a 90 minute duration with a 15 minute pause in between. The law, the bitcoin law spent less time in the financial committee of the legislative assembly than the soccer match lasted.

When they introduced the bill, the soccer match was starting and when they passed the bill and they finished all discussions, the match was still going. So, that’s how I describe it. How can you change the monetary policy for 6 million people with so little discussion? What happens is that they control the super majority, so they control how much they want to discuss something or not want to discuss something, and the law was presented at like seven pm and by a couple minutes past midnight was already approved and was going into full effect three months from then.

So, really you saw this confusion because the other thing that happened is that while the congress was approving it there was a Twitter space going on and the Twitter space was hosted by Mr. Nick Carter. I think he has got under some heat recently because he’s not a bitcoin maxi anymore or something like that, but he was hosting this Twitter space and he was allowing people to ask questions to President Bukele and one of his brothers. So, we didn’t have access, Salvadorans, and this was a Twitter space in English for American investors or venture capitalists or whatever, and they were giving out more information in that space than we were getting at the assembly.

So, actually I was at the assembly. I was watching the discussion as they passed the bitcoin law and I tuned out of it, and I put my headphones and started listening to this space because it was more valuable in terms of the explanations of what the law would imply. The example I always go to is that a congressman on the floor was saying this was not mandatory while President Bukele was saying in the Twitter space, no, it will be mandatory. McDonald’s will have to take your bitcoin.

Laura Shin:
So, what’s your take on why that was? Why was he explaining this in this Twitter space to a primarily non-Salvadoran audience but not necessarily doing too much to explain it to everyday Salvadorans?

Nelson Rauda:

Because a lot of the bitcoin law is not meant for Salvadorans and a lot of the bitcoin allure and the bitcoin PR stunt, it’s not for Salvadorans. It’s for foreigners. It’s for attracting foreign investment. It’s for attracting tourism. It’s for different reasons because essentially President Bukele, he’s not dumb at all. He knows about it. He knows that people don’t stash away money to invest.

Everyday Salvadoran doesn’t wake up every day and has five thousand dollars funds and says oh, what am I going to invest today. This is not the reality of our country.

So, a huge part of it, it’s not meant for Salvadorans. It’s a law meant for other people, but it’s paid for by Salvadoran taxpayers.

Laura Shin:

And it seems like he doesn’t necessarily need to convince Salvadorans because he can just get this made as law as you mentioned with the majority.

Nelson Rauda:

He controls the power. So, he doesn’t really need to do any convincing. They can do whatever they want. Imagine if the U.S. was going to get rid of their Supreme Court justices, which I figure a lot of people want to do now. The left especially. But could you do that in an hour? No because it’s not a democracy here. There are procedures and officials, and they replaced them all with loyalists in one night.

The first day that they took control of the super majority, they got rid of the Supreme Court justices. They got rid of the attorney general, and they replaced them all by loyalists in one night. So, they have been using this kind of power like that. The same thing with bitcoin. They changed the monetary policy of the country in one night and it doesn’t affect his following. It doesn’t affect his polling.

What’s interesting about bitcoin is that even though Bukele still holds like 85, 87 percent of approval in the majority in the polls, bitcoin hasn’t drawn from that popularity. So, on the contrary, bitcoin is really not popular. The recent polls are saying that 71 percent of Salvadorans don’t see any benefit from bitcoin to their own economies. Only two out of 10 support a decision to allow bitcoin. It’s the same people that say that they approve President Bukele. So, they like him. They like what he’s doing. They just didn’t buy into his crypto fever.

Laura Shin:

What was the initial reaction at the time when they announced that they were going to adopt bitcoin as legal tender? Was there excitement about it or interest? Like you’re saying now that people just feel like it hasn’t really done much, but at that time, was that different?

Nelson Rauda:

It was very negative because it drew from our collective trauma that we have which is dollarization. Dollarization was also an imposed measure. We are on the dollar since 2001 and it had been an old idea from the right wing party that rules El Salvador for 20 years but they didn’t have the votes. Nobody controlled the super majority. Nobody in El Salvador has had the super majority in assembly since I think 1984.

So, they didn’t have the votes and what happened was, and this is a funny anecdote. I hope it doesn’t get a little too off topic. What happened with the congressman was caught doing…he had DUI and he actually shot a policewoman while under influence of alcohol, but he had a special protection that he couldn’t be arrested as a normal citizen. So, they took the case to a political impeachment case to remove his protection, and then, the right wing party negotiated with his party and said okay, we’re not going to remove his protections for this case but you’re going to give us the votes for dollarization. So, that’s how it happened.

Dollarization, I think it was approved in November 2000 and came into effect January 2001. So, it was a really swift move. So, people were really…there’s a difference between dollar and bitcoin of course. People were used to dollar. There’s three million El Salvadorans in U.S. We are used to taking remittances. People go back and forth all the time, but there was a collective trauma because our national currency changed basically overnight. So, people said this will be like dollarization.

They will take away our dollars and we will only have this bitcoin and this bitcoin, it’s not even a coin. You don’t have bills of bitcoin. That I think was what triggered the initial reaction. Then the other thing was volatility. People might not have understood, but again, people might not understand what bitcoin is now, but they immediately know that this is a currency, or this is an asset that can really change lanes. It can change its price and drop its price or increase its price in a matter of hours.

So, I might have the equivalent of three dollars to have lunch by eight in the morning, but by the time it’s lunch, maybe I won’t be able to buy my lunch. So, people were really not attracted to that part. So, there was a lot of rejection. Actually, bitcoin was a huge part of the largest protest Bukele has had against him, which occurred on September 15, 2021 on Independence Day. The largest protest so far in his government and it was due to the bitcoin adoption and other factors but the rejection of bitcoin played a role in that.

Laura Shin:

Oh, wow. That’s interesting. I’m going to ask you a little bit more about that in a moment, but I did want to ask you as you said you had never heard of bitcoin until a few days before this was adopted. So, initially, let’s separate it from your perceptions of what President Bukele was doing, and you know, whether that was going to be positive or negative for El Salvador, but did you have any opinion or perception of bitcoin itself?

Nelson Rauda:
I was really coming out of ignorance. I didn’t understand. I remember a particular colleague who is a French American colleague and he understood some of bitcoin because I don’t know, he’s a nerd or something, and he started to explaining us to me and my editor what this was, what Bitcoin was. So, we really struggled to understand. There was not an education effort or public officials didn’t really understand what was going on. They passed the law, but I don’t think the majority of them or a lot of them knew what they were talking about.

I mean, there was people talking, congressman talking about how bitcoin is good for the environment when a lot of people said it’s not because of the energy used in mining or really rhetorical or really saying nothing of the sort. So, I didn’t really have an opinion. I just didn’t really understand what it was and because of that I didn’t understand why the president was intending to use it, and the first people we started to hear from didn’t really do much to hear or to alleviate concerns.

I mean, the first people that we had here leading a bitcoin delegation was Brock Pierce who is eccentric, who is a former child star, and he led a bitcoin delegation. We were like hmm, this does not seem like…we did not see suits, technicians, economists. It’s a really eclectic crowd. So, we went from ignorance to skepticism to outrage to okay let’s really sit down and talk to people who can explain to us what this is and what other people in other parts of the world use it for but that certainly took a while.

Laura Shin:

You talked about how you feel that part of the motivation on Bukele’s side was that he wanted to attract investment and tourism. Would you say this bitcoin law has succeeded in those goals?

Nelson Rauda:
No. Absolutely. There are no hard data that we can rely on to say hey this is what happened. The government talks about an increase in tourism…a 20 percent increase in tourism but there’s no way to directly connect it to the bitcoin law because other things happen in the world that affect tourism. COVID-19 pandemic. Lifting the travel restrictions. The economic recovery from the effects of the pandemic. So, there’s no way to really correlate it just to bitcoin.

Certainly, it has drawn a lot of attention but there’s no hard data to draw from. And then, from the economic perspective, the government talks about…I remember clearly because there were a series of bitcoin conferences in November last year in San Salvador. So, one of the presentations was from Athena Bitcoin. This is a company of ATMs that helped in the implementation in Salvador.

So, they argued that Salvador had recovered 10 percent on its economy thanks to the bitcoin law, which is essentially not true. It has recovered…in 2021 there was a 10 percent increase because in 2020, because of the pandemic was a decrease of nine points. So, in reality, you’re talking about a two-point growth in the economy, which is pretty normal for Salvadoran standards and it again cannot be directly correlated to bitcoin.

Again, I was at an event commemorating the first year of the law last month with a series of crypto companies and they talked about having generated 113 jobs in El Salvador. It’s okay but is it worth the cost of a public policy that has costed Salvadorans at least 200 million dollars? Do the math how much each job has costed us! So, in those two terms, I don’t think there are terms of investments are clear to this day.

Laura Shin:

Yeah. And I wanted you to elaborate on another point that you’ve raised in a New York Times op-ed that you published recently where you also mentioned that the timing of some of these announcements occurred around the same time as some other scandals involving his administration were occurring. So, talk a little bit about what happened there.

Nelson Rauda:

Day before the bitcoin law was announced, it was announced on a Saturday, the Friday before President Bukele had dropped out of an agreement with the OAS, the Organization of American States. He had set up an anti-corruption committee similar to what is happening in Guatemala for those familiar with it.

So, this committee had started doing revelations and uncovering corruption scandals, mostly related to pandemic buys, which were scandalous. There was a lot of corruption. At one point, the attorney general’s office, the former attorney general’s office, had said that two thirds of all of the pandemic contracts were under investigation.

So, this was on Friday. He drops out of the committee, and he says okay, we are going to simply drop out of it, which had been a campaign promise from Bukele. So, the next day he announced bitcoin, and all of the attention that had been talking about his dismissal of the court, his dismissal of the attorney general, his dropping out of anti-corruption movement, it’s gone. You’re talking about bitcoin. You’re talking about how innovative this country is and how bold this experiment is and how audacious Bukele is, and this has continued to happen.

A couple months ago, we published an investigation audio of a Bukele cabinet official describing his dealing with the gang members and conversations with gang members, with MS13 gang members and describing how he essentially took out a leader that’s asked extradition by U.S. government and took him to Guatemala. Bukele still hasn’t commented on that investigation. He still hasn’t said anything. Nobody from his administration did and he took to tweeting about bitcoin because there was a committee of central bankers and economists in El Salvador at that time.

So, bitcoin has been used as a PR stunt. It has been used as a distracting movement from Bukele from other corruption and scandals. He talks about bitcoin when he doesn’t seem to want to talk about other things. That’s what I say. I know for a crypto audience, and I know from the crypto point of view this is such a historic moment in the gain theory if bitcoin is going to be the currency of the future we were at the first. Yeah. But if you only go to that part of the story and ignore what is happening not in the future but in the present in El Salvador then you’re doing a disservice to the Salvadoran population and you’re basically spreading propaganda for the government.

One of my main points when I wrote that New York Times article – aren’t bitcoiners supposed to distrust the government? Aren’t bit coiners supposed to want to separate money from the state, so why is it that they are so enthusiastic about a government, an authoritarian government in a third-world country that adopts it? I mean, it should be the other way around, or at least it should be taken with a pinch of salt. You know.

Laura Shin:

Yeah. I actually wanted to also call out another contradiction which actually a number of people in the bitcoin community also mentioned such as Alex Gladstein of the Human Rights Foundation or Jerry Brito of Coin Center. There’s a bit of a contradiction to Bukele championing the adoption of bitcoin by El Salvador given that, you know, as you mentioned he has these authoritarian tendencies, and yet, bitcoin is the type of money that’s not controlled by the state. And so, in that regard, you could almost say that it could weaken his power for El Salvador to adopt it.

So, I wondered if you had a theory about that or another contradiction, which I’ve also seen called out, which is that bitcoin is often seen as this money as a path for freedom out of control of the state, and yet in this particular lot as you mentioned, it is mandatory that businesses accept it. There’s no choice. So, what do you think explains these contradictions?

Nelson Rauda:

I think if you have a normal process by proving a law, you would have been able to see these contradictions. You know, to hear about economists, to hear about bitcoin experts. There’s a lot of talk about who first wrote the law and Jack Mallers says he had a role and other people say they had a role, but these are discussions that should have happened before the law was approved. That’s the thing. I didn’t understand what’s all the rush about except that you needed to create news headlines quickly because you wanted to change the conversation and wanted to take control of the conversation. Those are our contradictions.

I think I’ve heard Gladstein, and I respect tremendously his job, and I’ve heard and I’ve read about the bitcoin being some sort of a trojan horse apparatus to authoritarian states and that might be the case.

Laura Shin:

Yeah, but what confuses me is that Bukele is like feeding the trojan horse to himself. You know what I mean? He’s sending it to himself, so that’s the part that I’m a little bit like wait.

Nelson Rauda:

Yeah because I think the element that’s missing in the trojan horse theory is that bitcoin is a grassroots movement. It’s never imposed from the top down. It grows as a grassroot, as a horizontal movement. So, that’s why I don’t see it working. I think in order for it to work as a trojan horse, to avoid the regulations, there’s a tremendous need of education, a tremendous need of understanding that for instance if you use the government-controlled wallet, the Chivo wallet…for me, it’s essentially a surveillance apparatus because you’re actually giving access to the government to all different transactions, which is antithetical to bitcoin in so many different ways.

So, you need education to understand what self-custody is, a self-custodial wallet. Not your keys, not your coin kind of thing. That’s a level of understanding many Salvadorans don’t yet have because there has not been an education effort from the state. It has just been thrown unto them like a sort of app, like Chivo was essentially replacing bank apps for the majority of Salvadorans. But it presents those contradictions. I believe that it’s not the case.

You know, I get a lot of heat because I’m crypto skeptic. I own bitcoin. I have used it. I have reported on it. I have paid for beers and things in bitcoin, but I don’t see it as a solution to Salvadoran ‘simmediate needs. I’m not talking about and I don’t want to go in…I don’t know enough about the realities of foreign people like what they do with it in Nigeria, or Lebanon, or Belarus. I had an interesting conversation about this in the Oslo Freedom Forum a couple months ago in Norway.

So, the thing is I’m talking about is El Salvador and the matter of fact is in here it has not solved any problems and it has not done anything more than create positive headlines for the president in international media.

Laura Shin:

All right. So, in a moment we’re going to talk a little bit more about the impact of the law in the last year, but first a quick word from the sponsors who make the show possible.

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So, you did mention that shortly after the adoption of bitcoin as legal tender that the largest protest that Bukele experienced was about the adoption of bitcoin. So, why do you think that that was the thing that motivated the largest protest so far?

Nelson Rauda:

I think in that moment, it was the drop that overflowed the cup, you know. It was the culmination of things. It was that bitcoin law resumed so many of the things that Salvadoran opposition doesn’t like about Bukele. He’s got authoritarian tendencies. He’s uncontrolled at public policies. The way that he deals with the government’s finance. The complicated economical situation. The disregard for Salvadorans and his love for show boldness and grandeur and platform.

So, there were a lot of things in the mix, but dislike in bitcoin was something the people could rally behind. Everybody had different stances, but in this bitcoin thing, the thing was we don’t really like it, we don’t want it and we think it’s going to be something that’s going to grab our money. So, I think it was in that moment a bonding factor for the opposition because the opposition don’t really know what to do and it’s really hard to know what to do.

You have people on the right in the opposition. You have people on the left. You have people kind of scattered all over the place, so bitcoin proved a union for this dislikeness of bitcoin probably. I don’t think it’s so much like that anymore, but in that moment it was something that reunited all of the characteristics that the opposition didn’t like.

Laura Shin:
So, as we mentioned, there hasn’t been a lot of uptake by…there was a survey in February by the National Bureau of Economic Research that said about 10 percent of Chivo users did continue making bitcoin transactions after spending the initial 30 dollar stipend. You have any sense of what people are using it for or whose using it?

Nelson Rauda:
It’s very hard to say Laura because there’s not widespread use. Many people do a transaction here or there and whether those transactions continue to happen into this year I don’t know. I think the same service said the Chivo wallet app essentially hadn’t had any downloads this year. So, it’s really hard to say. The uses that the government promoted it for also hadn’t happened. By every measure, the government said this will be a hit. It hasn’t. They said that it would make remittances cheaper. Remittances are like 20 percent of Salvadoran GDP because a large expat population hugely based in the United States.

So, the way people collect their remittances through banks or through services like Western Union and this sort of thing. So, with bitcoin, with Chivo, if you have a Chivo wallet in the United States and a Chivo wallet here, you don’t pay fees. The same goes for other apps like Stripe or other kind of things. But what the Central Bank is telling us the statistics is less than two percent of remittances are going through crypto wallet. So, despite the promise and the guarantee of savings, people are not really using it.

I think a lot of it has to do with how the Chivo was rolled out. There were a lot of people who lost money because of transactions that weren’t recorded. Issues with the functionality between bitcoin wallet transactions from Chivo to other ecosystems or other systems and imagine if people initially reject this out of ignorance because they didn’t know how that worked, and the first experience they have is as disastrous as the first weeks of Chivo were.

Are you really going to rely on such a system or such a device to use your money or to withdraw your money from? If you lose 50 dollars, it might not be a lot for a venture capitalist or an investor, but for people who take the remittances and are such an important part of their lives and their sustenance, yeah, you’re not going to risk it.

Laura Shin:

Yeah. I also see that the Central Bank of El Salvador said that only 1.5 percent of remittances went through digital wallets, which is obviously a really low figure and it’s surprising though because I do know that places like Western Union and stuff, they take quite a large percentage.

So, I personally would have thought that there might be higher uptake. Did you have a sense of whether even just that initial 30 dollar distribution was something that had any kind of impact on either the procession of bitcoin or just positivity toward the new law?

Nelson Rauda:

No. I think people essentially saw them as a subsidy, as another government hand out. The government gave 300 dollar checks during the pandemic, and then, they also have gift baskets. It’s not the proper word but they were handing out groceries to people that need. They were actually delivering door to door. So, people essentially took the 30 dollars subsidy not just as a way of assisting the government to incentivize the use of bitcoin but as a subsidy.

And so, people would take the 30 dollars and go to the grocery store or buy a good meal of fried chicken for the whole family. There were even people who were saying outside of the Chivo ATMs they were saying like I can give you the cash if you transfer me the balance. I will only charge you for an amount. So, a relatively small secondary economy there but people weren’t interested in holding or in keeping their bitcoin or even transacting it. They were just interested in cashing out.

Laura Shin:

And what about this Bitcoin City, which is supposed to become some city for crypto enthusiasts that would be powered by geothermal plants at a nearby volcano. Has any construction begun there, or has any of that come to pass, or do you have a sense of how serious that effort is?

Nelson Rauda:

As serious as the Bitcoin city in Senegal. That Akon city. We should ask the people in Senegal how that is going. No. I think that part especially, that bitcoin city part it’s the most spectacular of the PR stunt that the Bukele government has done with bitcoin.

First of all, El Salvador is not a self-sustainable country in terms of energy. We are connected to Central American grid. We import energy. The El Salvadoran country doesn’t produce enough energy for itself let alone powering a whole wacanda in the eastern part of El Salvador.

Second of all, energy is not cheap in El Salvador. It’s not cheap. What bitcoin miners essentially look for is cheap energy. They might have that in places like Texas or Arkansas. Places that would have a good electric grid and not a lot of demand because unpopulated parts of the country, etcetera.

We don’t have cheap electricity because a part of the electricity prices are paired to product derivative of oil. So, it’s essentially the prices of oil that drive up the prices of energy in El Salvador because a part of the production relies on it. So, we don’t have cheap energy.

So, in the case of we would have volcano that was enough to produce energy, I think the first priority should be to make the country self-sustainable, but this doesn’t happen overnight. This is what I tell you this is a PR stunt because President Bukele was in that Twitter space explaining the bitcoin law when it was being approved, and the next day he said we just discovered this new wealth of geothermal energy and we’re just starting to design a whole mining camp around it. That’s not true.

We haven’t seen plans for it. We haven’t seen technology for it. It’s highly technical… nothing. Not a geothermal energy saying yes this is what we are doing. Most of all, this cannot happen overnight. Anyone who knows anything about geothermal energy will tell you that a plan will not be constructed like that and will be operating by the end of the month. It just doesn’t happen like that. So, that’s why you should take it with a pinch of salt, and you should take President Bukele for what he is. He’s a politician and a savvy marketer.

He will sell you the moon. I think he would be able to sell ice to people in Antarctica but what part of that is true and becoming true. So, be considered on top of everything I just said is it relying on the budget for it will come from this bitcoin bonds that will be sold and for several months now have been in over demand according to their promoters. People like Samson Mow or Max Keiser. They say there’s a huge demand but why doesn’t put them to sell. Now they say that the market conditions are not ripe. I suppose they are right about that.

Laura Shin:

We’ll talk about the bitcoin bond in a moment, but I actually just wanted to ask one additional thing. Bitcoin Beach is an area that has put a lot of energy into adopting bitcoin. What’s your sense of how much bitcoin is a part of everyday transactions there and in general what do you feel the significance of Bitcoin Beach has been?

Nelson Rauda:

It’s a really good PR stunt and it’s a really good PR effort but I will invite anyone who comes to Bitcoin Beach and is astonished by the fact you cant pay for coconut in bitcoin, cross the street. Just go across the street. Don’t go to a far out part of the country. Just go across the street from the hotel you’re staying in at Bitcoin Beach and try to pay there in bitcoin, then let’s see how this is affecting widespread adoption. Yeah. I mean, there are a lot of places that will take your bitcoin there but don’t lose the fact that this is a tourist place.

The crypto tourism is for…this whole idea was floating around a lot of years in the crypto scene that is hey, what will happen when we are able to buy goods and services with bitcoin. Well, you can do that now in El Salvador in certain parts but it’s part of the gimmick I would say. They like to talk about a circular economy but what happened was an imagination that started going around and people understood subsidies, so yeah, you have some crypto enthusiast here and you have an education effort there but essentially, in Bitcoin Beach you’re more catering to the tourism than becoming their own bank.

In order to do that, you would need to go to other parts of the country. I think there are other more interesting efforts in that sense in El Salvador. I’m thinking about financial comparative in a town called Sonzacate who actually take services to people in far out places in the country.

But in terms of Bitcoin Beach, I think they have been a really good part of the communications effort for the government, and I think they are really quite comfortable in that position. I mean, good for them. I don’t say it as a bad thing but in terms of exploring widespread adoption or making education to all Salvadorans, so this grows and grows, I don’t see it happening. Not right now.

Laura Shin:

So, now let’s talk more about kind of the country’s financial situation. There has been the situation with the IMF where the IMF has urged the Salvadoran government to backtrack on the adoption of bitcoin saying that it poses a risk to financial stability. We’ve had ratings agencies that have cut the ratings on El Salvador due to its precarious finances, and as you mentioned, Bukele had this plans to issue the world’s first government bond backed by bitcoin. It was supposed to be a one billion dollar bond. So, describe like a little bit about what that meant and then why, you know, you think it’s been postponed.

Nelson Rauda:

I think the bitcoin bond was the Bukele government’s strategy to monetize its popularity among the bitcoin community. They tried to appeal to that. This huge over the top beach party back in November with Bukele appearing in a kind of metaverse character with an avatar coming down off a UFO with AC/DC playing hard in the back. So, that’s his gimmick. He tries to sell himself as this rock star. Rock star, super star, who happens to be head of state. But the reality of the country is the financial needs are bigger than bitcoin, are precede bitcoin.

I don’t agree with people that say that bitcoin has caused the country to go into brink of the fall. That’s just not true. I just think bitcoin hasn’t helped as much as they said it would. So, the bitcoin bond experiment was supposed to go online. It was announced in November. It was supposed to go online in February. I talked to Paolo Ardoino was the chief officer of Tether. You know, Tether is such a huge part of the crypto industry but it’s also…it’s part of a web of companies that include Bitfinex.

So, they were pretty much ready to go. They set up an office here in San Salvador and just things have been stalling and stalling, and what I’m hearing about crypto actors and other actors in economical news that the interest has cooled down. There’s just not so much interest. It was really from the financial point of view a really weird product. If you bought traditional bonds in El Salvador at the prices we’re now you would get a lot more interest or a lot of more benefits than buying that. And also, it was appealing to bitcoiners.

Why would you buy a bond just from the financial point of view if you can just buy bitcoin? If the bet is that the price is going to the moon, to a hundred thousand to a million, why don’t you just buy bitcoin instead of a bond except that you want to be charitable and help the government and be a part of that and have like a souvenir. Just from the strict numbers point of view, it doesn’t make sense.

But the reality of the country is that it has very precarious financial situations and I thought because IMF is not just cold shouldering the bitcoin initiative, IMF likes other things. They want transparency mechanisms, and they want to put pressure on the democratic side of the president. Everybody knows that IMF has a lot to do with the U.S. Department of Treasury. So, there is political interest in there, and I think Bukele saw bitcoin bonds as a possibility, and they said it pretty clearly as a possibility to finance the country without the IMF.

I mean, when we argue about these things, people say oh, why do you defend the IMF? Why do you love it? We don’t love the IMF. We know who they are. We’ve read the history and we know what kind of things they do to countries. I just don’t know if the alternative of changing from the IMF to private loaners with I don’t know what conditions and much less clarity would know what to expect. From the IMF, it’s not good but we know what to expect. We don’t know what to expect for loaners who would be private investors who have bought these bonds.

But I also think that the people who are potentially being the target of this product saw it for what it was and that’s why the interest cooled off. You know, in order for you to go to the market and sell bonds, you need to be oversubscribed. If you’re going to issue a billion, you have to have at least one point four billion in offers. I don’t know if the calculation of the government if they wouldn’t have that or if they would put a billion for sale. What I only say like 40 percent of it.

That would have been perceived as markets as more damaging than beneficial. So, I think this all kind of plays out and why it has been stalled, but the reality is that it hasn’t happened and there’s nothing being constructed in the place where Bitcoin City is going to be.

Laura Shin:

As far as I know, I think El Salvador now also has an 800 million dollar bond due in January. So, given that the bitcoin bond hasn’t happened, what do you think will happen at that point?

Nelson Rauda:
I think the government will find a way to deal with the January bond. The thing is a lot of analysts say in the markets when the country comes to say well we’re going to be able to make it, to generate, it’s not a thing of if it will default but when it will. I mean, you can pass the hurdle in January, but when will that hurdle become again. El Salvador, it’s not just about January.

Come September, it starts an 18-month period where there are several loans that are being matured and bonds that need to be paid in a situation that is not ideal for El Salvador and has been accumulated by years old debt, yes, but also support by the uncontrollable spend of the Bukele administration. So, they need to find a way to deal with it. Yeah. The government says that there’s zero possibility that the country will default. Our people at Bloomberg says that after Sri Lanka El Salvador is the number one candidate to default next and this is a trend that we’re seeing worldwide.

So, nobody knows what will happen in the future. I don’t think the country, it will probably not default in January because of some signals that we’re seeing but the financial situation does not…I mean, life goes on after maturity. The bond matures in January, and the whole financial situation is not going to be sustainable. Doesn’t look like it’s sustainable at the long term and at the rate that the Bukele government spends.

So, I think that basically he’s Achilles heel of his administration. He’s politically invulnerable. Doesn’t seem to lose any steam on the polls. He’s popularity doesn’t decrease but the economic situation is going to be where things crunch for him and the population, I think.

Laura Shin:

So, another issue is that El Salvador reportedly spent about a hundred million dollars on bitcoin to buy a total of…it’s slightly less than 24 hundred bitcoins. Now the value of those bitcoins is about 47 million. So, it’s a loss of more than 50 million dollars and as we’ve been talking about El Salvador is deep in debt. Its own dollar bonds are trading at 35 cents on the dollar. So, what impact do you think that the loss in the value of the bitcoins will have on this whole financial situation?

Nelson Rauda:

The first thing I would say with that Laura is that we aren’t really sure if we have to spend the hundred million dollars in bitcoin. I mean, what we have from President Bukele are tweets that says we bought bitcoin, but we never have seen a receipt. We don’t have the address of the wallet. We don’t know if he has sold bitcoin. Remember he actually built a pet hospital and he said he had done it with the earnings of bitcoin.

Maybe I’m just naïve and I don’t know how well this works but how can you make profits off bitcoin if you’re not selling the coins. So, I don’t know. He’s explained that it was some sort of accounting trick, but then, the finance ministry said no for building the hospital we need to sell some coin. So, you have bought this amount of coins, close to 2400. How many of those did you sell to build the hospital? Have you sold anymore?

This is all a huge nebulous thing, which again is anti the principles of bitcoin, of transparency and open sourcing. I mean, we should be able to know what the government is spending on. We should be able to see what the government is spending our money on because people like to say Bukele has money. But Bukele has our money. It’s all of our moneys. It’s all taxpayers or loans that we will eventually have to pay as a country.

So, that’s the first thing I would argue, but in the unlikely event Bukele has bought all the bitcoin that he has announced to have bought. The other thing is a matter of priorities. If a country where a fourth of the population is poor, is it morally correct to buy bitcoin, which is going to be an investment in the future but it’s taking away resources from products now not in the future. I don’t know. This is why I always worry. Maybe Finland should buy bitcoin and experiment with that. Maybe Sweden or Switzerland. They should experiment with that but a country like El Salvador where a couple weeks ago we had floodings in the emergency area of the largest public hospital in the country or where hundreds of people immigrate to the United States every day because they don’t have economical opportunities here, or there are thousands of students that don’t get admissions because there are not enough positions in the university every year, or teachers are in this and these conditions. Is a country with those conditions supposed to be spending on a speculative asset that might or might not reap benefits in the future? I think that’s a question worth asking.

Laura Shin:

So, in addition to the values of the bitcoins that El Salvador owns losing their value, obviously now that bitcoin is legal tender in El Salvador, the loss in the value might even effect how Salvadorans perceive bitcoin or maybe it’s just something that really isn’t on their radar even though it has technically been adopted as legal tender. So, do you feel that seeing the loss in the value of bitcoin has had any material effect on how Salvadorans perceive bitcoin?

Nelson Rauda:

I was in a small town maybe 20, 30 kilometers away from San Salvador a couple weeks ago and I was talking to a farmer wh has a piece of land where he cultivates bell peppers and tomatoes and things like that. So, I ask him. He was an immigrant. He spent from 1989 to 95 in L.A. His kids are now in California. I said hey, what do you think about bitcoin? He said I don’t really like it. I’d rather have dollars and I think I made a good decision now that bitcoin is really low. I was really surprised a 76 year old man was kind of saying I dodged a bullet there because I didn’t get into it.

It’s there but when I usually go around the country because I’m so deep into this crypto coverage, I ask around kind of tongue in cheek saying hey do you take bitcoin and waiting out what people are going to say and some of them are nice and say no thank you, or some say oh yeah, we haven’t gotten around to accepting it yet. It’s legal tender and it’s mandatory according to the law, but it was never enforced like that and that’s an important thing.

I think an important part of why it’s not enforced like that is because the government could do it and they proven they have this authoritarian way that could make us all accept it, but they saw it’s really unpopular and Bukele is really concerned about his polls. He said if I try to impose, do you imagine the dystopia of policemen enforcing people to accept bitcoin because this will liberate you. This didn’t really happen.

Bukele himself found a lot of opposition from the crypto community on the part of being mandatory and imposed currency. So, they didn’t really enforce it and people nowadays kind of just brush it off. I mean, yeah, it’s legal tender and it’s mandatory but almost nobody does transactions in it. So, yeah. Whatever. That’s kind of the basic attitude.

Laura Shin:

So, in general, what would you like the bitcoin community to know about the difference between the perception of bitcoin’s impact in El Salvador and the reality?

Nelson Rauda:

If it does something for the bitcoin community is that it enforces the fact this should come from the people. Isn’t this a movement that comes from activists and people concerned about an authoritarian state and privacy and people who are being prosecuted by the states and trying to separate and gaining more freedom from the government. So, what happens when a government is the enthusiast? Well, El Salvador is the only example. I don’t know how things are going in Central Africa. I imagine that’s a whole different reality, but in here it doesn’t really work when it is imposed. Maybe try and do efforts of people adopting it voluntarily, willingly, and not because we have to.

The other thing is that there’s a whole construct of bitcoin being this tool for financial freedom in the world. It might be the case in other places but what I always say is financial freedom does nothing for Salvadorans if we don’t have political freedom. Freedom of expression. We are now the country with the highest per capita incarceration rate because the government has arrested close to 50,000 people in the last three months.

Is the freedom the bitcoin promises only financial, only monetary? Are we going to be put against a corner with all of liberties taken away but we will have bitcoin, so that’s good and we should be thankful for it? That’s the thing, bitcoin cannot fix El Salvador because the problems are bigger than this and I really would encourage the bitcoiner in the crypto community to be more skeptic about the government and as you like to say don’t trust what the government is saying but verify.

Laura Shin:

And so, as we said at the beginning when you started covering all this, you didn’t really know anything about bitcoin and you’ve had to go through this big learning curve, so I know obviously so much of your coverage has been about El Salvador and its relationship to bitcoin but I’m sure along the way you’ve just learned about bitcoin itself and I was wondering if we can separate out everything that we’ve been talking about El Salvador and what’s been happening with bitcoin. If you were to just think of bitcoin, what is your opinion of it now?

Nelson Rauda:

I think it’s an interesting technology. I think especially if you were to do it with transparency and you have a clear goal and you have a controlled environment, like a controlled way of doing it, not rushing into it or not spending like a madman who caught the crypto fever, I think it has interesting possibilities. Is the possibility of sending remittances with lower fees than the traditional service interesting and important for some of us, yes it is.

Should we invest or explore the blockchain technology for storing digital information and for digitizing the public records, I think yes we could. It’s interesting. Again, I don’t want to deny how people in all the latitudes use it, but the whole experience of how it has happened in El Salvador, it’s a hard trauma to recover from and not only just for me but for all Salvadorans.

I’ve talked to people who are enthusiasts. Like good people who are really into it and enthusiastic about bitcoin and they go out into the countryside and try to educate people to use bitcoin and they say that before the bitcoin law their main problem was people heard big dreams and thought about a scam. Nowadays, they say after bitcoin law the problem they encounter is they talk about bitcoin and think bitcoin is Chivo. They think bitcoin is going to drain their money because of what their prior experience with Chivo has been.

So, I think that’s also a really interesting lesson of how governments can help bitcoin. Maybe stay out of the way if you don’t know how to do it properly. I think it’s in stages. Maybe, I don’t know, I had a couple of bitcoin wallets and I still have the equivalent of 10 dollars. If somebody in future I’m able to buy a Tesla with it, I’m going to be very grateful of bitcoin, but we’ll have to wait and see.

Laura Shin:

All right. Well, this has been an extremely illuminating conversation. I really appreciate you coming on the show. Where can people learn more about you and your work?

Nelson Rauda:

I’m on Twitter. My handle name is like my last name Rauda, and I’m verified, so you shouldn’t be able to lose me, and I spend too much time on Twitter, so I would love to connect with your audience and your followers. Please, if you are interested about El Salvador, we have a newsletter in English that’s called El Faro English and you can learn more about all of the complexities of this tiny but interesting nation in Central America. We also cover other countries of Central America. Yeah. I’d be more than willing to continue this conversation. Thank you so much for having me on your show Laura.

Laura Shin:

Great. Well, it’s been a pleasure having you on Unchained. Thanks so much for joining us today. To learn more about how bitcoin is impacting El Salvador, check out the show notes for this episode. Don’t miss our daily round up of the biggest news in cryspto in Unchained newsletter. Visit Unchainedpodcast.com to subscribe. Unchained is produced by me, Laura Shin with help from Anthony Yoon, Matt Pilchard, Juan Aranovich, Pam Majumdar, Shashank and CLK Transcription. Thanks for listening.

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