El Salvador’s President, Nayib Bukele, said last week he intends to construct a Bitcoin-only city. In the country’s southeast, the city will be built near the base of the Conchagua volcano.
El Salvador, a poor Central American country, became the first to utilize bitcoin (BTC) as an official currency alongside the US dollar. While the entire bitcoin community is ecstatic with the news, the project has not been a smash hit.
According to a tweet made on Nov. 26, Steve Hanke, an economics professor at Johns Hopkins University, questioned the rationality of sponsoring the creation of a crypto city in a country where poverty is rampant and social amenities are lacking.
“Dictator Bukele has stated his intention to construct a Bitcoin city… this is a deluded dictator’s ludicrous political stunt. Why isn’t he concentrating on what Salvadorans genuinely require, such as healthcare?” remarked the well-known bitcoin skeptic.
Finance in the context of a casino
El Salvador is scheduled to issue $1 billion in Bitcoin-backed bonds in 2022 as part of the Bitcoin City Finance Plan. Half of the funds will be used to purchase bitcoin, with the rest going toward energy and bitcoin mining infrastructure.
Hanke was critical in his disapproval of the plan. “This form of casino financing will almost certainly land Bukele in hot water with the IMF and the World Bank.”
El Salvador’s use of bitcoin as legal money has previously alarmed the IMF. The financial institution warned that the country’s ambitions to buy more of the digital asset would necessitate a “very cautious review” of the ramifications for the country’s financial stability.
Bitcoin discount
President Bukele said Friday that the nation acquired another 100 bitcoins to its increasing collection.
El Salvador “bought the dip”, he says, referring to a financial investment strategy of buying an item at a discount.
As for El Salvador’s sinking dollar-denominated bonds, Hanke suggested Bukele intended to “replace” them with bitcoin bonds.
“A bitcoin bond, however, would yield less while posing more risk. Bukele seems to be inventing a new financial arithmetic,” he said.
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