One account has been conspicuously quiet while Crypto-Twitter has been awash with apocalyptic memes about the collapse of Cryptocurrency exchange FTX and the precipitous decline in the price of bitcoin. The President of El Salvador, Nayib Bukele, who introduced Cryptocurrency legitimate money a year ago, did not urge his fans to purchase the dip during the recent decline. His Twitter profile no longer has the laser eyes, which were formerly a common motif amongst market participants.

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El Salvador was the initial nation to recognize Cryptocurrency as legal tender, but the collapse of the price of bitcoin and other Cryptocurrencies in the aftermath of the bankruptcy of Cryptocurrency exchange FTX has prompted the country's leaders to announce the signing of an unrestricted trade agreement with China. El Salvador Vice President Félix Ulloa announced that China has proposed to acquire the nation's $21 billion in external debt as a component of a free trade arrangement. In 2001, the country officially accepted the US dollar as its national monetary system. Furthermore, Salvadoran experts think that the loan funding from China might represent a final rupture from the United States and shift the nation nearer to China, Russia as well as Turkey.

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The 6.5 million-strong nation in Central America is experiencing financial difficulties. It has a Eurobond maturity payment due in January of around $688 million, or €667 million. Bukele predicted that the Cryptocurrency price would reach $100,000 at the beginning of the year, and he pledged that his government will issue bonds denominated in bitcoin to pay off national debt. Despite predictions to the contrary, the price of bitcoin has leveled at around $16,000. There is good evidence to suggest that the president has ended up spending almost $107 million on 2,381 bitcoin, according to the finest tracker of his secretive transactions. The present value of the first investment would be little above $40 million.

China-El Salvador Ties Expands Since 2018

As of the end of 2018, diplomatic ties between El Salvador and Taiwan were severed. China promised to construct a stadium as well as a bookstore in the nation of 6.5 million people after the big strategic shift in Beijing's favor. Furthermore, Beijing is planning to transform the La Union port into a major transportation and distribution center.

Although Bukele had hoped, despite the advice of the IMF, to establish a novel political economic growth, he has indeed been sorely disappointed. Simply said, there are no simple solutions to try. Even while Cryptocurrency damages are negligible compared to the total deficit, the president's refusal to heed the advice of the IMF and reverse course on Cryptocurrency policies has scared investors across the world.

El Salvador accepted the US dollar as its nation's currency in 2001, making it unable to start printing more money to combat growing inflation, a coming recession, as well as a deteriorating budgetary position. Rather, this has used its resources to plug the budget gap. It is possible, as Membreño warns, that the nation would be compelled to abandon the dollar if the current economic crisis continues. But Membreño claims that if the nation accepted Chinese debt finance, it would move closer to China, Russia, as well as Turkey, and away from the United States. For El Salvador, such a shift would be revolutionary in terms of their international relations. Securing such funding would not be cheap. China essentially functions as a payday loan company, profiting handsomely from such transactions. However, Chinese businesses are able to break through when financing is linked to future commercial and strategic gains.

China has promised to fund the construction of a stadium and a library in El Salvador after the government severed ties with Taiwan in 2018, but progress on plans to develop the port of La Unión into a logistical center has stagnated. Bukele's aspirations may be aided by warmer relations with China. The United States and European Union have both criticized him for breaking the nation's constitution by running for reelection in 2024. China functions as an impartial underwriter whenever nationalist regimes of any kind take power. China may provide Bukele with the means for him to be autocratic and tread on the constitution with little to no consequence. Bukele's massive attitude to the rule of law and repeated assaults on the old political establishment have helped keep him the most popular president in Latin America, with popularity ratings hovering around 90%. After decades of corruption from the conventional parties as well as escalating gang violence, Salvadorans voted for him in 2019, and several of them fear that he is their final hope. Bukele has been gambling with bitcoins, but he has never understood whether to stay or lose. Establishing even deeper relations with China would've been taking a huge risk.

Disclaimer: The author’s thoughts and comments are solely for educational reasons and informative purposes only. They do not represent financial, investment, or other advice.