The Legislative Assembly of El Salvador has recently passed a bill that allows the nation to issue a type of bond known as “Volcano Bonds“, which are backed by Bitcoin. This bill, which passed with a vote of 62 to 16, will become law once it is ratified by President Nayib Bukele.
— Asamblea Legislativa 🇸🇻 (@AsambleaSV) January 11, 2023
In addition to this, the National Bitcoin Office (ONBTC) of El Salvador, which is an administrative unit specifically tasked with coordinating and consulting on all Bitcoin-related projects in the country, announced that they will begin issuing these bonds in the near future. President Bukele has previously announced plans to establish the world’s first “Bitcoin City“, which he hopes to fund by raising $500 million through the issuance of Bitcoin-backed bonds.
This city, which is planned to be located in the southeastern district of La Unión and will have a circular shape to resemble a giant coin, will include residential sections, commercial areas, museums, entertainment venues, an airport, railway, and other critical infrastructure. Furthermore, the government plans to raise an additional $500 million for the purpose of purchasing Bitcoin, with any appreciation in the digital currency ultimately shared with bondholders.
President Bukele has been a vocal advocate for the adoption of Bitcoin in El Salvador, and in June 2021, the country officially adopted Bitcoin as legal tender. However, not everyone is supportive of Bukele’s plans, with credit rating agencies and the International Monetary Fund (IMF) raising concerns about the potential risks to financial stability and consumer protection in El Salvador posed by Bitcoin.
The IMF stated in a statement last year that “Bitcoin poses significant risks to financial stability and consumer protection in El Salvador”. Despite these warnings, El Salvador has already invested heavily in Bitcoin, with public records indicating that the country currently holds 2,381 BTC, purchased at an average buying price of $43,357. At the current price of Bitcoin, which is around $18,100, El Salvador’s BTC holdings are worth around $43.2 million.
However, since the country has spent nearly $103.23 million on its BTC purchase, El Salvador is currently down by more than $60 million on its BTC investment. In summary, the Legislative Assembly of El Salvador has passed a bill allowing the nation to issue Bitcoin-backed bonds, known as “Volcano Bonds”, which will be issued soon by the National Bitcoin Office. The government plans to raise $1 billion through these bonds to fund the development of a city called “Bitcoin City” and for buying Bitcoin, with any appreciation in the digital currency ultimately shared with bondholders.
The move has been met with criticism from credit rating agencies and the IMF, who have raised concerns about the potential risks to financial stability and consumer protection in El Salvador posed by Bitcoin.