The first country in the world to adopt the premier digital currency as legal tender is planning another ambitious move
Back in September, the tiny Central American nation of El Salvador became the first country in the world to adopt the premier digital currency as the legal tender in the country. The country purchased 400 Bitcoin ahead of the introduction. The rollout was given a boost from the government giving citizens who register $30 worth of cryptocurrency. Although the rollout was hampered by technical glitches, and the adoption by the general public has been sluggish — the government has continued to push the crypto adoption agenda.
The Salvadorian government has not only shrugged off criticism from global financial institutions like the IMF, it has in fact continued to take new positions in Bitcoin with every dip in the price — with the most recent purchase bringing its digital currency reserves up to 1220 BTC. More than 200 new cash machines were also installed across the country as part of this endeavor. Having said that, the adoption of the government-sponsored digital wallet Chivo wallet, designed to facilitate transactions has been slow so far.
“Invest here and make all the money you want. This is a fully ecological city that works and is energized by a volcano.”
~ Nayib Bukele, President El Salvador
In September and October, Salvadoreans abroad sent only $32M in remittances back home using the Chivo Wallet, representing about 2.5% of the total remittances. Apparently, this is encouragement enough for the central government to announce an ambitious plan to build the world’s first “Bitcoin City”, funded initially by bitcoin-backed bonds — a circular city in the shape of a large coin in the south-eastern region of La Unión.
According to the reports, the city would have an airport, residential & commercial areas, and feature a central plaza designed to look like a Bitcoin symbol from the air. Geothermal energy would be provided from the Conchagua volcano in southeastern El Salvador. Speaking at an event closing a week-long promotion of bitcoin in El Salvador, President Bukele said that no taxes would be levied, except for value-added tax (VAT).
Half of the VAT collected would go towards funding the bonds issued to build the city, while the other half would pay for services such as garbage collection etc. The estimated cost of the public infrastructure would be around 300,000 bitcoins. While this move has been greatly welcomed by the crypto proponents, the bumpy introduction has fueled protests against the generally popular government of President Bukele.
Talking about the technical details about the bonds, Samson Mow, chief strategy officer of blockchain technology provider Blockstream, told the gathering the first 10-year issue, known as the “volcano bond”, would be worth $1 billion, backed by bitcoin and carrying a coupon of 6.5%. The bond itself would be issued on the “liquid network” — a bitcoin sidechain. The government is also working on a securities law, and the first license to operate an exchange would go to Bitfinex.
While El Salvador is the only country to embrace the mainstream crypto as the legal tender in their country, many other jurisdictions are also experimenting with a little less ambitious CBDC’s — the digital equivalent of their fiat currencies. There are arguments in favor and against this move and we will find out soon whether this bold move was wishful thinking or the first successful adoption of a futuristic vision.
Originally Published on Medium
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