SAN SALVADOR, El Salvador — El Salvador has become the first country to adopt Bitcoin as legal tender, even though many of its citizens admit they don’t understand it, while at the same time analysts are expressing concerns around financial instability.
President Nayib Bukele, described by the New York Times as “a tech-savvy millennial,” has promoted the digital currency’s adoption, pitching it as a way of bringing more of the 70% of citizens who do not have bank accounts into the formal economy.
Using the cryptocurrency would make it faster and cheaper to get remittances from abroad, and could free the indebted nation from the hold of the traditional global financial system, Bukele has stated.
“Making Bitcoin legal tender — alongside the dollar, which the country has relied on since 2001 — is also part of Mr. Bukele’s charm offensive toward crypto entrepreneurs, who often seem like his primary audience,” the Times reported.
Confusion & Distrust
But many in El Salvador, many are viewing the move with confusion and distrust, afraid that the volatility inherent to using virtual tokens with no physical backing and which are well known for soaring high and crashing hard could be dangerous for the economy and their own savings, the report added.
Financial analysts, meanwhile, are worried about having that instability ripple through an entire economy.
“Having that risky exchange rate volatility is what was trying to be avoided when El Salvador adopted the dollar,” Jaime Reusche, of the rating service Moody’s, which downgraded El Salvador in July partly because of the Bitcoin law, told the Times. “This clearly has no precedent.”
The new law stipulates that all businesses must accept Bitcoin as payment. The government will also create a trust with $150 million in public funds to facilitate dollar conversions, among other things.
Citizens Given Wallet
As CUToday.info reported earlier, and as the Times also noted, to promote Bitcoin’s use the government launched a digital wallet, called “Chivo,” which is Salvadoran slang for cool, and will pay a $30 Bitcoin bonus to citizens who download it. Salvadorans will also be able to withdraw funds in cash from 200 ATMs and 50 consulting centers across the country.
But the Times also noted only about one-third of Salvadorans use the Internet and nearly a quarter live below the poverty line.
And even some Bitcoin advocates are wary. Jerry Brito, of the crypto research group Coin Center in Washington, told the Times there are “obvious contradictions” to the official adoption by a national government of a currency designed to thwart governmental control over money.