El Salvador plans Bitcoin City” powered by volcano

El Salvador's president said the Central American country plans to build a volcano-powered "Bitcoin City," funded in part by a $1 billion issuance of government bonds backed by the cryptocurrency.

President Nayib Bukele said the city would not impose property, income or capital gains taxes. Its infrastructure and other costs are funded by a sales tax and money from bond issues.

Bukele compared his plans to those of the ancient Macedonian ruler Alexander the Great, who founded cities bearing his name around the world.

“If you want Bitcoin to spread across the world, we should build some Alexandrias, right?” he said in English during a stage appearance at a beach resort, wearing his signature baseball cap backwards. “Let everyone be a part of it.”

The 40-year-old president launched the project at the end of a week-long Bitcoin festival in his country, which became the first to accept Bitcoin as legal tender two months ago.

The bonds will be 10-year bonds denominated in U.S. dollars, with half of the funds converted into bitcoin and the other half used for infrastructure and bitcoin mining, Samson Mow, chief strategy officer of blockchain technology company Blockstream, said on stage with Bukele.

The bonds will be issued in 2022 and construction of the city - near a volcano that the president said would power the metropolis - will begin 60 days later, the government said.

El Salvador made Bitcoin legal tender in September and offered a $30 incentive - slang for cool - to citizens who downloaded the government's e-wallet Chivo.

After a rocky start when the price of Bitcoin fell and the Chivo wallet crashed, Bukele had said the app had millions of users, although dollars remain by far the main medium of exchange.

Between September and October, Salvadorans abroad sent about $32 million in remittances home through Chivo Wallet, the head of the country's central bank said recently. This corresponds to around 2.5% of all transfers in these months.

The hugely popular Bukele - a former mayor of the capital San Salvador - has approval ratings of more than 80%. But the authoritarian leader has sought to consolidate power by firing all judges over 60 and replacing five justices in the Supreme Court's constituent chamber.

El Salvador has been negotiating with the IMF all year and analysts do not see an agreement coming soon.

“There has not been much, if any, consistency in the administration of economic policy,” analysts at Amherst Pierpont Securities said in a recent note. “It is also difficult to assess the game plan when the economic agenda remains subordinate to the autocratic political agenda.”