But was it really Bitcoin that helped El Salvador dodge default? Perhaps the truth is much more mundane.
El Salvador regained many investors’ graces in July 2022, after announcing a $1.6bn bond buyback using special drawing rights from the IMF and a $200mn loan from the Central American Bank for Economic Integration. Buybacks in September and December reduced the principal for the 2025 bond to $348mn from $800mn.
“The buybacks to some extent fixed their communication issues. They changed from catering to the crypto community back to catering to traditional investors,” says Esteban Tamayo, a Citi economist covering the region.
The country is even earning something of a reputation for financial prudence.
Daniel Clifton at Strategas calculates that US policymakers, on net, injected $755bn in liquidity in the first quarter of this year, whereas they were net subtracters of liquidity all through last year. The correlation between changes in liquidity and bitcoin’s price looks tight:
