Sunday, November 28

Step into the future or sheer megalomania?

At forty, Nayib Bukele is one of the comparatively young heads of state in the world. He also expresses this with his style of clothing. One of his trademarks is a baseball cap that sits upside down. But don’t let that fool you. Because Bukele is by no means as harmless as it seems at first glance. On the contrary: human rights activists accuse him of an increasingly authoritarian style of leadership that intimidates, harasses and threatens critics with the abuse of state power. Internationally, El Salvador and its head of government recently hit the headlines because of something completely different: The country was the first state in the world to allow Bitcoin as an official means of payment. Since then, all businesses that are technically capable of doing so have had to accept the cryptocurrency. Citizens of the country can also pay their taxes digitally. Bukele celebrated this as part of a so-called Bitcoin Week and immediately announced the next project.

There is only one tax in Bitcon City

A so-called Bitcoin City is to be built at the foot of the Conchagua volcano in the east of the country. It is a mixture of a gigantic Bitcoin farm and a free trade zone. On the one hand, geothermal power plants are supposed to tap the energy of the volcanoes and mine for bitcoins. At the same time, however, international investors are also attracted by huge tax advantages. Specifically, there should only be a VAT in the city. Half of this is used to finance public services. The other half is to be used to service the bonds issued for the construction of the city. This is also something special. Because the bonds issued should be covered by Bitcoin. Overall, the government is calculating with construction costs of 300,000 Bitcoin. This currently corresponds to an equivalent of around 16 billion euros. Quite a considerable amount when you consider that El Salvador’s total government revenue has so far been less than five billion euros a year.

Seventy percent of the population only use cash

The President’s Bitcoin offensive is therefore also viewed critically by many experts. Because El Salvador suffers above all from severe economic inequality. There is a small group of very rich oligarchs, while on the other hand around twenty percent of the population live in absolute poverty. In addition, many of the normal residents are unlikely to really benefit from the advantages of the digital currency. Around seventy percent of the population do not even have their own bank account and only rely on cash. The economic division of society is therefore likely to widen rather than narrow as a result of the Bitcoin projects. Especially since huge sums of money have to be invested that are urgently needed elsewhere. It is also questionable how attractive the planned city actually is for international investors. Because they are not only looking for low taxes, but also a well-developed infrastructure and a functioning state administration.

So far, the US dollar has been used as a currency

Singapore, repeatedly mentioned as a role model by Bukele, can offer all of this. It is at least doubtful whether it will be possible to copy these locational advantages in El Salvador of all places. In any case, the President himself does not shy away from historical comparisons in order to put himself and his project in the right light. Among other things, he spoke of a “modern Alexandria”. He himself would be in the tradition of Alexander the Great, who founded countless cities in antiquity. Critics, who accuse Bukele of a tendency to megalomania anyway, are unlikely to calm down such sentences. Basically, however, the desire for a new currency in El Salvador is understandable. Because the country has been using the US dollar as a means of payment since 2001. But this also makes you dependent on the US government’s monetary policy. Many doubt whether Bitcoin, of all things, is a good alternative, which is subject to strong fluctuations.

Via: Reuters

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