What could possibly go wrong?
El Salvador, the first country in the world to make bitcoin an official currency, announced plans to issue $1 billion in bitcoin-backed bonds in 2022, The Wall Street Journal reported Monday. The country will issue the novel 10-year bonds in partnership with Canadian digital assets infrastructure company Blockstream, using blockchain technology. President Nayib Bukele said over the weekend that some of the bond money will go toward building a "Bitcoin City" at the base of an active volcano.
Bukele, the driving force behind El Salvador's big bet on cryptocurrency, said the oceanside Bitcoin City will get its revenue from a value-added tax, and the city will have no income, property, or capital gains taxes. "Invest here and earn all the money you want," Bukele said, in English, to a gathering of cryptocurrency enthusiasts at the Latin American Bitcoin and Blockchain Conference in El Salvador on Saturday night.
Putting the city at the base of the Conchagua volcano was a conscious decision. Burkele said the city will also be emissions-free because it will get its power — notably for energy-intensive bitcoin mining — from the volcano's geothermal activity. The government already has a bitcoin mining pilot program using geothermal power from the Tecapa volcano, The Associated Press reports. Monday's Late Show joked the location could also be a trap to ensnare annoying cryptocurrency proselytizers.
Bukele's plans for a crypto-utopia are serious, though — he said construction would start 60 days after the financing is available. Aside from the volcanic peril, "the plans to raise debt tied to bitcoin carry significant risks for a $26 billion economy that is highly indebted and faces high borrowing costs," the Journal reports.
El Salvador was in late-stage negotiations for a $1.3 billion financial aid program from the International Monetary Fund earlier this year, until Bukele's New Ideas party used its new control of congress to replace the attorney general and judges on the Constitutional Court in May, giving the party full control of the government. Analysts say the bitcoin bonds are one mechanism Bukele is auditioning to replace IMF assistance. The U.S. also announced it is shifting its foreign aid to nongovernmental organizations in El Salvador in response to Bukele's power consolidation.