Was El Salvador's Bitcoin plan, as some analysis and enthusiasts claimed, the dawn of a new monetary age? 

2-Would Salvadorans embrace this new digital currency, and, if so, what implications would this have? 

3-Would Bitcoin expose a population with little financial education and a limited economic safety net to the fate of a highly volatile cryptocurrency market? 

4-Would El Salvador learn how to hedge Bitcoin's benefits to their advantage, paving the way for other emerging economies to follow suit? 

5-What are the risks for governments adopting a cryptocurrency as legal tender? 

6- Describe the background of the companyThe problem faced by El Salvador and its leadership (Note: what specifically is the decision to be made within the context of the case. specifically differentiate between the problem and its symptoms. 

7- an analysis supported by academic as well as other sources ( The analysis is in response to the posed case questions and .). 

8-recommendations are supported by evidence from research). please include in-text citation and free references 9- introduction and conclusion. 

 

Text :Background: El Salvador, under the leadership of President Nayib Bukele, embarked on a groundbreaking experiment in the global financial landscape by adopting Bitcoin as legal tender. The move was driven by a desire to address economic challenges, reduce dependence on the U.S. dollar, and promote financial inclusion within the country.

Decision and Implementation: The official decision to adopt Bitcoin as legal tender was made on September 7, 2021. Bitcoin's price experienced a 17% drop on this day, leading to speculation about its causes. President Bukele saw it as an opportunity to purchase more bitcoins amid the market dip, tweeting about "buying the dip" and adding 150 new coins.

Public Response and Protests: Following the implementation of Bitcoin as legal tender, public sentiment was mixed. Thousands of Salvadorans took to the streets, protesting against the decision out of fear of potential economic instability. Some protestors went as far as labeling President Bukele as a dictator, highlighting the divisive nature of this monetary shift.

International Relations and Political Developments: Tensions with the U.S. and the broader international community escalated, particularly in light of the National Assembly's decision to allow consecutive presidential reelections. The U.S. expressed concerns about potential democratic erosion, drawing parallels with the historical context of other nations, such as Venezuela.

Challenges with Bitcoin Adoption: Despite reports of Chivo app downloads, actual Bitcoin usage remained low, with only 12% of consumers and 7% of businesses conducting transactions in Bitcoin. Challenges included a lack of financial education among both consumers and businesses, reluctance to use digital wallets, and the government's decision not to enforce Bitcoin acceptance by businesses.

Issues with Chivo App and Lack of Transparency: The Chivo app, designed to facilitate Bitcoin transactions, faced glitches, fraud, and theft. This led to trust issues among Salvadorans, who found themselves transferring the $30 incentives from their Chivo wallets to other wallets and cashing out the benefit in dollars. Concerns were also raised about the lack of transparency in the Bitcoin plan rollout, including questions about Chivo wallet funding and the undisclosed status of the $150-million BANDESAL trust fund.

Bitcoin City and Bitcoin-Backed Sovereign Bond: President Bukele furthered the initiative by announcing plans to build a "Bitcoin City" for bitcoin mining at the base of the Conchagua volcano. The city's residents would be exempt from most taxes, except for a value-added tax (VAT). El Salvador aimed to issue the world's first bitcoin-backed sovereign bond, raising $1 billion in partnership with Blockstream. The bond's proceeds would be split between buying bitcoin and developing energy and bitcoin mining infrastructure. By December 2021, there were already $300 million worth of "soft commitments" to the bond, expected to be issued in 2022.

IMF Response and Economic Outlook: In late January 2022, the IMF urged El Salvador to narrow the scope of the bitcoin law, recognizing positive efforts for financial inclusion but calling for strict regulation and oversight. Despite boasting a 9% GDP growth in 2021 and a record remittance increase, El Salvador faced economic challenges, including a doubled budget gap.

Critical Questions and Risks: The narrative concludes with critical questions about whether El Salvador's Bitcoin plan marks a new monetary age, how Salvadorans will embrace the digital currency, and the potential implications for a population with limited financial education. It also raises questions about whether El Salvador can effectively harness Bitcoin's benefits, setting an example for other emerging economies. Risks associated with governments adopting cryptocurrency as legal tender include economic instability, public distrust, and challenges related to transparency and oversight.

Problem Faced by El Salvador and Leadership Decision: El Salvador faced economic challenges, including a doubled budget gap, dependence on the U.S. dollar, and issues related to remittances. The leadership decision was to adopt Bitcoin as legal tender, aiming to address these challenges, increase financial inclusion, and reduce reliance on traditional financial systems. The problem encompassed economic vulnerabilities, while the decision to adopt Bitcoin was a strategic move to reshape the country's economic trajectory. The symptoms of this problem included public protests, economic concerns, and challenges in the implementation of the Bitcoin plan. The decision was bold and aimed at creating a unique position for El Salvador in the evolving landscape of global finance.