El Salvador's president Nayib Bukele wants to build a privately owned bitcoin city - something that is criticized by several researchers in the country. Photo: Presidencia El Salvador. Source: Flickr.


Researchers criticize planned bitcoin city in El Salvador: "It's playing with public money"

In El Salvador, the president is planning Watch to build "Bitcoin City ”, anda utopia with zero income tax, zero property tax - and zero carbon dioxide emissions. The project is being sold as a way to benefit the national economy and promote innovation, but who really benefits from the bold idea? And what's so great about a privately owned city?

- This is not just a good idea. It is the evolution of humanity.

The words come from Nayib Bukele, President of El Salvador, when he announced in November 2021 that the country would build a bitcoin city at the volcano Conchagua on the south coast. In the middle of an eccentric light show, among smoke machines and to the music of AC / DC, the 40-year-old promised that the city would include residential areas, commercial areas, services, museums, entertainment, bars, restaurants, airport, harbor and railway - all dedicated to bitcoin.

The idea of ​​a bitcoin city brings to mind the future, but this is not the first time that attempts have been made to establish private economic zones. As early as the 1960s, several American businessmen wanted to establish independent states on coral reefs outside California and Florida, but they were stopped by the US government. On a coral island between Fiji and Tonga in the Pacific Ocean, "Minerva", a tax-free zone, was started in 1970. Already a year later, however, the pressure from Tonga's government became too high, and the zone has more or less disappeared. In 2020, three crypto enthusiasts tried to create one crypto paradise on a cruise ship, but it also went down well.

Despite failed attempts, however, interest has not cooled. Behind the initiative in El Salvador is the Free Private Cities Foundation - a company that works to establish communities around the world with a slogan that reads "Future governance is private". It is all based on a libertarian idea of ​​redefining citizenship and governance.

- The basic principle is simple: create a quasi-independent jurisdiction with loose regulation, some state supervision and minimal taxes, and let the free market do its thing, writes journalist Laurie Clarke in MIT Technology Review.

Local resistance

However, the dream is far from problem-free. The same company has supported a similar project in neighboring Honduras. The economic zone started is called Próspera and is located on the island of Roatán north of the mainland. Although the zone has attracted millions of investors from Silicon Valley, there is a downside. On the island is the village of Crawfish Rock, a community of just over 100 people, which are not satisfied with the development. When Erick Brimen, CEO of Próspera, bought land on the island in 2017, the village had the impression that it was another tourist resort. When construction began in 2020, however, the village leaders understood that it was a much more radical project than that. Luisa Connor, chair of the community board in the area mean that they were deceived, and that the approval they gave for the project was not for the project that then came to fruition. Shortly afterwards, Brimen is said to have offered to buy the entire Crawfish Rock, something the village said no to. However, this is something that Brimen himself says is false information, and the proponents of Próspera believe that they have always been careful to maintain good relations with the local community.

Opposition to Próspera, however, is not limited to the village of Crawfish Rock. Protests throughout Honduras have been held against private economic zones when it is believed that ordinary people will not benefit at all, and that it is left to wealthy, foreign investors to decide what is best for society. In addition, the residents of Crawfish Rock were promised that they would get more of the jobs that the project took with them - but in reality it was given the majority of jobs to foreign workers. Economist Carlos Urbizo Solis also believes that the tax rules of the economic zones will only increase the inequalities that exist in the country.

A new form of colonialism or the future?

Back to El Salvador and President Bukele. What can be expected from his grand plans? Researcher José Miguel Cruz, with expertise in, among other things, democratization, points out that it should not even be possible to build Bitcoin City.

- El Salvador has the natural resources to generate energy, but it does not have the infrastructure. We must remember that we are one of the poorest countries in the region. That money can be invested in health and education instead.

Here, at the Conchagua volcano, El Salvador's president wants to build the bitcoin city. Photo: Raúl Arias. Source: Wikimedia Commons.

Cruz also believes that the country also does not have the means to control that crime would not take over the potential zone.

- The Salvadoran government has been characterized by the systematic destruction of the institutions of political and economic control. In addition, not all projects involving bitcoin are transparent. So we do not know who guarantees that there will be no money laundering.

The people of El Salvador are also not entirely convinced of the benefits of bitcoin. Only 35 percent of the Salvadoran population is for bitcoin as a currency in the country, while 40 percent are against. It shows a study from the University of Francisco Gavidia.

Several analysts believe that President Bukele is probably doing this as a desperate attempt to bring more money into the country and thus increase its popularity. The International Monetary Fund has warned that the country's debt may grow by 95 percent by 2026, but investing in bitcoin for that is a big risk.

- It's almost like a national casino. It is playing with public money, betting it without any security, says researcher José Miguel Cruz.

The treatment that the locals in Honduras have endured is also something that scares the people of El Salvador. According to economist José Luis Magaña the concern is justified as only one fifth of the farmers in the area around the volcano where Bitcoin City is planned to be built owns their land. It should also be added that the country passed a new law, only three days after Bitcoin City was announced, which allows the government to expropriate land for public use.

However, the fact that the private economic zones would not benefit the whole country is something that the Free Private Cities Foundation does not agree with.

- I am quite optimistic about what is happening in Latin America. There are lots of smaller nation states that are looking for solutions and are willing to try new things, says Peter Young, CEO of the company

José Luis Palma Herrera, researcher in territorial conflicts and inclusive urban development, is instead very critical, and sees it all as a new version of so-called corporate colonialism.

- The promise to stop poverty and improve lives has been used to get citizens to accept these enclaves of corruption and exploitation. But most of the profits from the enclaves end up outside the country with no real development in the regions where they have been.

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