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Ghost in the Pupusa: Paying with Bitcoin in El Salvador

Categories : Cash does not require a technology infrastructure, Cash has legal tender status, Cash is the first step of financial inclusion, Cash is the most widely used payment instrument, Future of Cash
November 16, 2021
Tags : Cryptocurrency, El Salvador, Financial inclusion, Legal tender, Surveillance capitalism, Unbanked
Glitches marred the adoption of bitcoin as legal tender in El Salvador, causing anger and anxiety to customers and retailers.
Manuel A. Bautista-González

Columbia University in the City of New York

This post is also available in: Spanish

Rushing to Build a Bitcoin Payments Infrastructure

Following the Bukele government’s decision to make bitcoin legal tender, El Salvador bought 1,100 bitcoins between September 6 and October 27. The Finance Ministry earmarked $205.3 million to make bitcoin legal tender. The ministry used $150 million to establish a fund to back bitcoin conversions at the country’s development bank (Banco de Desarrollo de la República de El Salvador).

The government launched a digital wallet called Chivo (slang for “cool”). It also installed 200 Chivo ATMs and 50 branches to allow users to buy bitcoin or convert it to cash, with the government absorbing commission fees. After downloading the app, Salvadorean users received a $30 stipend in bitcoin, a sum equivalent to nearly 8% of the country’s monthly minimum wage. Bitso (the largest crypto platform in Latin America) handles Chivo’s custody and exchange services.

Breakfast at McDonald’s? Using Bitcoin in Retail Payments

On September 7, Bitcoin became legal tender in El Salvador. Large chains in San Salvador started accepting payments in bitcoin, including food franchises such as  Starbucks, McDonald’s, and Pizza Hut; the mobile company Claro, supermarkets; and electronics stores.

Using bitcoin in payments has surprised foreign crypto enthusiasts: “For me, [bitcoin] is a store of value. But when I was recently in El Salvador, I was using bitcoin I have on my phone… to buy coffee, to buy breakfast, to buy dinner. So I was using it as a medium of exchange,” said Peter McCormack, host of the podcast What Bitcoin Did.

Disrupt and Destroy

Glitches marred Bitcoin’s September 7 rollout. Most Salvadoreans did not have a seamless experience using bitcoin as a payment instrument. Protesters marched on the streets. That day, the crypto asset’s price fell nearly 10%.

Esteban de la Peña Padilla, founding partner at IBEX Mercado, said El Salvador was “as ready [for the bitcoin rollout] as Latin Americans can be for this.” “No one had any expectation that this would be completely smooth,” said Brock Pierce, crypto evangelist, and tech investor.

Bitcoinflation

Many Salvadoreans and financial analysts are worried about the impact of bitcoin’s price volatility on El Salvador’s inflation dynamics.

From Citizens to Retail Investors: Speculating with Legal Tender

Salvadorean customers are keenly aware of bitcoin’s volatility:

Some Chivo users took to day trading, speculating on Bitcoin’s price swings. The Chivo wallet had to restrict trading to curb speculation. “It’s become really hard to trade, convert, and even guarantee your money in dollars,” said Alexander Sermeño, a day trader and consultant.

Cashing Out of Bitcoin

Many low-income Salvadorans converted their bitcoin funds into cash as soon as they could. Withdrawing cash from Chivo ATMs is not fast or easy.

On September 15, anti-government marchers in San Salvador protesting against Bitcoin and the Bukele administration vandalized and set fire to a Chivo ATM.

This post is also available in: Spanish

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