top of page

El Salvador's Bitcoin city: The Future of Foreign Direct Investment?

Writer's picture: Margaux GhazzaouiMargaux Ghazzaoui

After El Salvador's tech-savvy millennial president Nayib Bukele announced his plans to make

Bitcoin a legal tender (alongside the US dollar) in March 2020, he was met with much criticism. Despite global disapproval, Bitcoin was adopted as a dual legal tender by the ‘Legislative Assembly of El Salvador’ on the 7th of September 2021 after 73% of deputies had voted in favour of the law.



Nayib Bukele initially campaigned for the mass adoption of Bitcoin as developing nations, El Salvador included, don't have much access to traditional financial services. A recent study confirmed that over 70% of Salvadorians could not access these services. Bitcoin can be seen as an instrument to bridge this financial gap in developing nations, offering financial resources for all without discrimination. So, why is this not implemented everywhere in the Global South?


A small crash course on Bitcoin-


It is a highly, highly volatile asset; its price can fluctuate by 50% monthly, making it hard to maintain stable savings. This can explain why the International monetary fund (IMF) grew increasingly concerned with the future of Salvadorians. In January 2022 they threatened to withdraw the $1.3 billion loan that had previously been under negotiation to help the country with long-term developmental projects if Bitcoin was not removed as a legal tender.



Futuristic leader Nayib Bukele has a vision of grandeur for this small developing nation and is

currently choosing to ignore the IMF's threats in this cat-and-mouse game. As Bitcoin hit local bear market lows in November of 2022, countless critiques arose, but Bukele continued to dollar cost average the nation's investment. Despite currently not providing any profitable returns, Bukele is proud of the project and was even able to repay the nation's first loan installment last month. His vision is proving to slowly payoff as after this recent cryptocurrency relief rally, it was reported that El Salvador has the second-best bond performance in the world.


This brief update on El Salvador's finances leads us to Bukele's next grandiose project-Bitcoin City.


Let me paint you every investor's dream. Firstly, one finds a promising emerging nation. Said

investor invests and, before you know it the chosen nation ultimately becomes the next Singapore or Dubai. Mr investor cashes out years later, making a sizeable return (enough to sustain the next three generations, although in this economy, I may be a little too generous). What if I said Bukele wants to turn El Salvador into the newest spot for wealthy foreign investors and hot money?


Bitcoin City will be built from scratch using funds from a $1 billion Bitcoin bond issued by the Salvadoran government. The bond was issued in November 2021 and was oversubscribed more than ten times, indicating strong investor interest. The city, which is currently in the planning stage, will hold the simple but effective title of "Bitcoin City." It will be located near the sunny Gulf of Fonseca, on the Pacific coast of El Salvador. The city will come equipped with modern amenities and infrastructure, including a residential area, shopping malls, entertainment venues, and even a university (maybe a potential future McGill exchange partner?). The city will be designed to run entirely on Bitcoin, and all transactions in the city will be conducted using cryptocurrency. Bukele promises a 0% capital gains, property and payroll tax (even I’m getting tempted, might have to book a trip soon) and the Salvadorian nationality for anyone who invests upwards of 3 BTC ($75k USD as of February 20th 2023)


The plans for Bitcoin City have drawn both praise and criticism. Supporters of the idea believe that the new city could become a hub for innovation and technological advancement, as well as a magnet for cryptocurrency investors and young entrepreneurs. This would greatly help El

Salvador’s economy, boosting GDP, living standards and global reputation. However, critics argue that the project could be a risky bet, as the volatility of Bitcoin could affect the stability of the new city's economy. The use of Bitcoin as the primary currency in the city could attract money launderers and other criminals who seek to take advantage of the currency's anonymity and lack of regulation. The city's development could lead to increased inequality, which has proven to contribute to crime, which El Salvador unfortunately already greatly suffers from.


Despite the concerns, President Bukele has remained optimistic about the Bitcoin City project and has expressed his firm belief that it will create thousands of new jobs and attract investment to the country. The project is still in its early stages, and it remains to be seen whether it will be successful in the long term.


So, don’t forget when in a couple of years you receive your first paycheck and are looking to start creating generational wealth, you might want to check out Bitcoin City (I hear they have amazing weather too, very appealing to the average Canadian) not financial advice!!


4 views0 comments

Comments


bottom of page