El Salvador Prexy Gambles His Country's Forex Reserves On Bitcoin

Beware of naked millennial presidents bearing bitcoin, Anthony Faiola and Sammy Westfall reported for the column WorldView of the Washington Post.

Photo Insert: Naybi Bukele, the President of El Salvador, claimed he trades his country’s cash for bitcoin on his phone while “naked.”

El Salvador, economists say, is learning that lesson the hard way. President Nayib Bukele — who dropped the mic on Twitter this month by claiming he trades his country’s cash for bitcoin on his phone while “naked” — oversaw the cryptocurrency’s adoption as legal tender three-and-a-half months ago.

Since then, its plunging value, the vice president of Moody’s credit rating agency estimates, has cost the national treasury up to $22 million worth of precious reserves. The country’s bonds have tanked. Fears of diminished financial transparency, meanwhile, have stalled a vital loan deal with the International Monetary Fund (IMF), which urged El Salvador on Tuesday to drop bitcoin as legal tender.

“El Salvador now has the most distressed sovereign debt in the world, and it’s because of the bitcoin folly,” economist Steve Hanke told Fortune. “The markets think that Bukele’s gone mad, and he has.”

The 40-year-old bad boy of Latin American politics who favors backward baseball caps and cool-dude shades pitched the cryptocurrency last year as a companion to the US dollar, which entered use as El Salvador’s national coin in 2001.

The digitally mined bitcoin would be a great economic equalizer, he pledged, freeing his remittance-dependent people from the yoke of high transfer fees while helping poor Salvadorans without bank accounts access financial services for the first time.

When Bukele dreams, he dreams big. Back in November, when bitcoin was nearly twice its current value of around $36,000 a pop, Bukele announced a $1 billion “bitcoin bond” to build a new, tax-free city in the shadow of the Conchagua volcano.

Jaime Reusche, vice president at Moody’s, said Bukele, a former advertising executive, is still targeting a bitcoin bond offering in February or March. If he finds any takers, the plan is to use half the funds to build the city, and the other half to invest in bitcoin, the future profits of which could be shared with investors later, Reusche said. “It makes very little sense,” Reusche told me.

“If investors wanted exposure to bitcoin, they should simply buy bitcoin, not El Salvador’s risk.”

The bitcoin foray has proven costly for El Salvador — gambling the country’s treasury reserves on an erratic and exotic instrument while upending an International Monetary Fund deal over concerns that cryptocurrencies make it harder to trace money laundering and corruption, Reusche said.

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