El Salvador became the first country to accept bitcoin as a legal currency, despite widespread skepticism from the nation and warnings from the international community about the risks for its citizens.
The government of President Nayib Bukele claims that the move will allow many Salvadorans to access bank services and help them save $400 million annually on fees for sending money home.
“Tomorrow, the eyes of all the world will be on El Salvador for the first-ever time in history,” Mr Bukele said. Bitcoin did this,” Mr Bukele tweeted Monday.
Monday evening, he announced that El Salvador had purchased its first 400 bitcoins in two tranches totaling 200. He promised more. According to cryptocurrency exchange app Gemini, the 400 bitcoins were worth around $21 million.
Recent polls have shown that the majority of El Salvador’s 6 million inhabitants oppose the idea. They will continue to use the US dollar as the legal currency for the past 20 years.
Jose Santos Melara, a skeptic, said that bitcoin was a currency that doesn’t exist and that it will not benefit the poor as well as the rich. He took part in a protest that included several hundred people in San Salvador, the capital.
“How can a poor person invest in bitcoin if they don’t have enough food?”
El Salvador’s parliament passed a law in June that allowed the use of crypto money as a tender for goods and services.
The bill, which was an initiative by Mr. Bukele, was passed within 24 hours of being submitted to Congress — where the president and his allies hold a majority since March.
Experts and regulators raised concerns about cryptocurrency’s volatility and lack of protections for users.
To prevent arson by the opposition, the government has installed more than 200 bitcoin-teller machines.
Mr Bukele also promised $30 to each citizen who adopts this currency.
Laura Andrade, director of Central American University’s Public Opinion Institute, stated that “these are decisions the administration has made without consulting” the people. She also said that 70% of Salvadorans were against the move.
She told AFP that she has seen “no positive effect to dramatically transform people’s living conditions.”
Nearly two-thirds (63%) of Salvadorans polled for the poll stated that they were not interested in downloading the “Chivo,” an electronic wallet that allows users to purchase and spend bitcoin.
Oscar Cabrera, an economist at the University of El Salvador, said that currency volatility would have a negative impact on consumers and affect the price of goods.
In June, the currency was below $30,000, less than half of its record high of over $64,000 two months prior.
The Salvadoran Foundation for Economic and Social Development (FUSADE) stated that it was against the Constitution to require merchants to accept Bitcoin as a payment method.
President Accuses Opponents Of Seeking To “Sow Fear”
Popular but under fire from many quarters for his moves to tighten power, Mr. Bukele has accused his opponents of trying to “sow fear among Salvadorans,” few of whom have access to formal banking services.
More than a fifth GDP is made up of remittances. They are mainly sent via Western Union agencies by approximately 1.5 million expats.
World Bank data shows that El Salvador received $5.9 billion from foreign nationals in 2020, mostly in the United States.
The country relies on the money to help a weak economy, which contracted 7.9% in 2020 due to the coronavirus pandemic.
Concerns have been expressed by economists as well as international organizations such the World Bank, International Monetary Fund, and Inter-American Development Bank about El Salvador’s adoption of bitcoin.
The United States has asked El Salvador to ensure that bitcoin is “regulated”, “transparent”, and “responsible” in its use, as well as to safeguard itself against “malign actors”, such as hackers who seek ransom money.
Regulators have criticized Bitcoin for its potential illegal use, notably in laundering criminal proceeds and financing terrorism.
However, not all are against bitcoin. According to Bukele, approximately 50,000 Salvadorans used bitcoin in June. Many of them live in El Zonte on the coast. There, hundreds of people and businesses use the currency to pay their utility bills or buy a can soda.