El Salvador president Nayib Bukele has announced plans to build “Bitcoin City” in the La Unión region of southeastern El Salvador. The city will be financed by the issuance of US$ 1 billion in “Bitcoin bonds”, which will be El Salvador sovereign debt. Half of the proceeds will be invested in Bitcoin, bought on the open market, and half will fund the infrastructure of the city, including the geothermal energy plant which will power it using heat from the adjacent Conchagua volcano. Coupon on the bonds will be 6.5%, paid in US$. After five years, the Bitcoin position will be liquidated and an additional dividend paid to bondholders from the proceeds.
The city will be a “special economic zone” with no income, capital gains, payroll, or property taxes. A 10% VAT will be charged on all transactions within the city, with revenue used for municipal services and to pay interest on the bonds. The bond issuance is expected to be the first in a series of similar issues over time. Bond investors and direct investors in the city will obtain the right to live and work in El Salvador, with a fast track to obtaining citizenship.
Here is the presentation by Bukele at the Bitcoin Week conference on 2021-11-20. This is a mobile phone video taken from the audience, but it has good sound. Bukele spoke in English, but most of the higher quality videos, including the official one from the El Salvador presidential press office, are over-dubbed in Spanish, so I’m going with this one. The details of the plan for the city starts at the 9:50 mark: skip ahead if the lead-up bores you. Explanation of the bond issue starts at 23:00.
Here is press coverage of the announcement:
- Reuters: “El Salvador plans first ‘Bitcoin City’, backed by bitcoin bonds”
- Bloomberg: “El Salvador Plans Tokenized Bitcoin Bonds and Tax-Free ‘Bitcoin City’ ”
Here is a short video from Matthew Kratter of Trader University summarising the plans for the city and bonds.
For decades, the idea has been circulating in libertarian circles that a third world country could vault itself into the top ranks simply by declaring a zone where creative and productive people could work, build, keep, and re-invest all of the proceeds of their labour without the dead hand of taxes and regulation. Success would act as a magnet to attract more such people, and the wealth they created would turn the city/enclave into a world-class centre of innovation, just as Singapore transformed itself into a world financial centre. Now it looks like El Salvador is going to give it try, explicitly saying it plans to become the “Singapore of Latin America”. It will be interesting to see how this plays out.