El Salvador has long been affected by insecurity and gang violence. After the Covid-19 pandemic, the country has dealt with an economic contraction, a large fiscal deficit, and a high debt burden. There are also increasing concerns about president Nayib Bukele’s dismantling of democratic institutions and fraught negotiations with the IMF for a $1.3 billion loan agreement.
The U.S. dollarMonetary unit of the United States of America, and a number of other countries e.g. Australia, Canada and New Zealand. More has been El Salvador’s national currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More since January 1, 2001. On June 6, 2021, President Bukele announced the country would adopt bitcoin as legal tenderMoney that is legally valid for the payment of debts and must be accepted for that purpose when offered. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered (“tendered”) in payment of a debt extinguishes the debt. There is no obligation on the creditor to accept the tendered payment, but the act of tendering the payment in legal tender discharges the debt. More in a pre-recorded address in English for the Bitcoin 2021 conference in Miami.
Bukele’s decision caught Salvadorans by surprise. Until then, El Salvador’s main crypto experiment had been Bitcoin Beach, a pilot in the Pacific surf town of El Zonte. Some businesses accepted payments in crypto, and 2 ATMs allowed users to convert bitcoin to U.S. dollars.
Crypto evangelist Brock Pierce has been in contact with officers in the Bukele administration since June. Jack Mallers, founder of the bitcoin paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More platform Strike, helped write the Bitcoin Law. The Salvadorean Assembly rubber-stamped the 3-page legislation on June 9, 2021.
The Bitcoin Law mandates that “all economic agents must accept bitcoin as a means of payment” (art. 7) except for “those who have no access to the necessary technology” (art. 12). The law also establishes that “taxes cam be paid in bitcoin” (art. 4). However, the U.S. dollar remains the country’s “accounting reference unit” (art. 6). “Continuing to use USD as a parallel currency is sensible, especially as many Salvadoreans use physical cashMoney in physical form such as banknotes and coins. More, but it could delay business adoption of BTC [bitcoin],” tweeted banking and finance commentator Frances Coppola.
The law passed amid strident opposition:
There was barely any discussion about the law and its implementation:
The Bukele administration argues that Bitcoin might help lower the cost of receiving remittancesMoney sent home from emigrants working abroad. More. In 2020, remittances reached 24.1% of El Salvador’s GDP. Kiara Hueso, a 27-year-old beauty products saleswoman, said it had been “easier and faster” to withdraw $75 sent by her father in the United States – after two days of trying.
Douglas Rodriguez, president of the Reserve BankSee Central bank. More of El Salvador, said, “We don’t see any risks [with bitcoin]. Perhaps, upside risks. [Bitcoin will] become a payment system, a system for financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More […] For us, Bitcoin is simply a payment methodSee Payment instrument. More.”
In 2017, only 30.4% of Salvadoreans had a bank account. That year, only 18.9% of the population had a debit card, and 5.7% had a credit card. In 2019, nearly 22.8% of households lived below the poverty line. In 2020, 59% of adult Salvadoreans had internet access. However, more than 90% of rural households have no internet access, according to a 2020 report from the Interamerican Development Bank and Microsoft.
German Martínez, a 61-year-old Uber driver, said that Bitcoin is “like credit cards. We got used to using plastic, and now we need to start using crypto. The world has to evolve.” However, having a digital wallet is not an option for all.
Critics are shocked by the Bitcoin community’s cavalier disregard concerning president Bukele’s authoritarianism and the potential misuse of the Chivo wallet for state surveillance and other nefarious purposes.