• Saturday, Dec 04, 2021
  • Last Update : 01:23 am

El Salvador leads world in adopting bitcoin as official currency

  • Published at 04:50 pm September 7th, 2021
bitcoin
Representations of cryptocurrency Bitcoin are seen in this picture illustration taken June 7, 2021 Reuters

Doubters say bitcoin could increase regulatory and financial risks for the Central American nation, and polls show Salvadorans are wary of the volatility of the cryptocurrency, which can shed hundreds of dollars in value in a day

El Salvador on Tuesday became the first country to adopt bitcoin as legal tender, a real-world experiment proponents say will lower commission costs for billions of dollars sent from abroad but which critics warned may fuel money laundering.

The change means businesses should accept payment in bitcoin alongside the US dollar, which has been El Salvador's official currency since 2001 and will remain legal tender.

President Nayib Bukele, who has pushed for adopting the cryptocurrency, says it will help Salvadorans save about $400 million the government calculates is spent annually on commissions for remittances.

The 40-year-old president is popular with the public but has been accused of eroding democracy, including by the US Biden administration.

Doubters say bitcoin could increase regulatory and financial risks for the Central American nation, and polls show Salvadorans are wary of the volatility of the cryptocurrency, which can shed hundreds of dollars in value in a day.

To warm up a skeptical public, Bukele has promised every citizen $30 in bitcoin if they sign up for a government digital wallet. Ahead of the launch, El Salvador bought 400 bitcoins, Bukele said, helping drive the currency price above $52,000 for the first time since May.

In the early hours of Tuesday the wallet had not appeared on Apple Inc, Google and Huawei's app download platforms, however, prompting a series of tweets from Bukele, including one with a red-faced "angry" emoticon.

"Release him! @Apple @Google and @Huawei," Bukele said. The wallet was later available from Huawei.

Some citizens are optimistic.

"It's going to be beneficial ... we have family in the United States and they can send money at no cost, whereas banks charge," said Reina Isabel Aguilar, a store owner in El Zonte Beach, some 49 km (30 m) southwest of capital San Salvador.

Known as Bitcoin Beach, the town of El Zonte aims to become one of the world's first bitcoin economies.

In the run-up to the launch, the government has installed ATMs that will allow bitcoin to be converted into dollars and withdrawn without commission from the digital wallet, called Chivo.

Bukele on Monday looked to temper expectations for quick results and asked for patience.

"Like all innovations, El Salvador's bitcoin process has a learning curve. Every road to the future is like this and not everything will be achieved in a day, or in a month," he said on Twitter.

The cryptocurrency has been notoriously volatile, rising to more than $64,000 in April and falling almost as low as $30,000 in May this year.

The move to make bitcoin legal tender alongside the US dollar has muddied the outlook for El Salvador's quest for more than $1 billion in financing from the International Monetary Fund (IMF).

Analysts fear adopting the cryptocurrency could fuel money laundering in a country with serious problems of government corruption and organized crime.

Bukele has promised to clean up graft, but the Biden administration recently put some of his close allies on a corruption blacklist.

In barely two years in office, he has taken control of almost all levers of power. Last week, top judges appointed by his allies ruled he could serve a second term.

After the bitcoin law was approved, rating agency Moody's downgraded El Salvador's creditworthiness, while the country's dollar-denominated bonds have also come under pressure.

But Bukele, who does not shy away from controversy, on Monday retweeted a video that showed his face superimposed on actor Jaime Foxx in a scene from Django Unchained, Quentin Tarantino's film about American slavery. The video portrayed Bukele whipping a slave trader who had the IMF emblem emblazoned on his face.

Bukele later deleted the retweet.

In his own tweet, Bukele said: "We must break the paradigms of the past. El Salvador has the right to advance towards the first world."

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