El Salvador’s Bitcoin Experiment Faces Challenges

Introduction

Two years ago, El Salvador shrugged off a chorus of warnings and adopted Bitcoin as legal tender in a bid to revitalize its economy and improve access to financial services.

Bitcoin’s Decline

• Bitcoin has lost more than half its value since then.
• President Nayib Bukele’s currency gamble has not gone down well.

The Goals of Adoption

• President Bukele wanted to make it easier and cheaper for Salvadorans to receive remittances from family members abroad.
• He also aimed to provide financial services access to the 70 percent of people with no bank account.
• Remittances account for a fifth of the country’s GDP.

Lack of Trust in Crypto

• Two years after adoption, the goals have not been achieved.
• There is little trust in cryptocurrency among the population.
• A poll found that 71 percent believed Bitcoin has not improved their family economic situation.

Public Opinion

• On the streets of San Salvador, people have a negative view of Bitcoin.
• Many believe it is a bad investment and a form of robbery.
• The currency’s volatility is a major concern.

Bitcoin’s Value

• Bitcoin traded at about $45,000 two years ago and reached a record $68,000.
• Currently, it is worth just over $25,500.

Cash is King

• To facilitate Bitcoin transactions, the government created the “Chivo” digital wallet and promised each user the equivalent of $30.
• Only one percent of remittances came via Chivo, indicating low adoption.
• People prefer to use hard cash due to lack of confidence in cryptocurrency.

Government’s Perspective

• Economist Carlos Acevedo believes it is too soon to call it a government failure.
• He suggests that Bitcoin’s price could rise at any moment, changing the scenario.
• The International Monetary Fund and World Bank warned about the risks of currency fluctuation and money laundering.

Bitcoin City and Bonds

• After Bitcoin hit $68,000, President Bukele announced plans to build a “Bitcoin City” powered by thermal energy.
• The country would issue $1 billion in Bitcoin bonds to finance the initiative.
• However, nothing has come of the project or the bonds to date.

Government’s Bitcoin Holdings

• The government has purchased 2,381 Bitcoin, but the rate is undisclosed.
• In November last year, Bukele said the government would buy one Bitcoin every day, but it is unclear if this has happened.
• Bitcoin does not exist in the local economy, as everything is paid in dollars.

Positive Outlook

• Some individuals, like YouTuber Jose Francisco Ayala, believe it is a matter of education and that the country is moving forward with Bitcoin.

© 2023 AFP