On September 7, El Salvador became the first country in the world to adopt bitcoin as legal tender, a risky experiment by the government and on which President Nayib Bukele has staked his political reputation.
The launch faces difficulties and has sparked protests across the country, with some businesses complaining that uptake of bitcoin will be mandatory (denied by the government), while critics warn it will be used by drug traffickers to launder money and that it is highly unstable; a fear borne out by the 9% fall in the price of bitcoin shortly after its launch, which is not unusual for a cryptocurrency, but to which opposition politicians said meant the country lost about $3 million.
Govt efforts
The government has installed ATMs to exchange bitcoins throughout the country, and has created an electronic wallet application, Chivo, to deposit $30 in bitcoins in the bank accounts of the minority of Salvadorans with one. In fact, President Bukele has highlighted the benefits of bitcoin for the large numbers of unbanked people and for the 70% of the population dependent on overseas remittances, who will now be able to save a good part of the commissions they have been paying to money transfer companies like Western Union, which stand to lose around $400 million a year.
Is the Ball rolling now?
Many economies around the world will be following events in El Salvador closely over the coming months. Bitcoin has had a bumpy ride over the last decade, but its value has increased, which could give Salvadorans who start saving in the cryptocurrency an advantage. Ukraine has just legalized its use, not as an official currency, but has provided an effective legal framework, while Cuba and Panama are looking at legalizing bitcoin. If they do, this could be the start of a wider trend to officialize the use of bitcoin as a universally used currency — a status it obviously already has for a long time, but unofficially.
For the people
For Salvadorans, everything now depends on their perception of risk, its use for sending remittances, and the acceptance of the cryptocurrency for daily transactions, and bearing in mind its volatility and use until now as an instrument for storing value. All eyes on El Salvador.
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