- The country is making initial steps towards transition
- El Salvador has begun installing Bitcoin ATMs
- Citizens will be able to convert the cryptocurrency into U.S. dollars and withdraw it in cash
- The government has created a $150 million fund to back the conversion
El Salvador has become the first country in the world to pursue Bitcoin as legal tender. Nearly two months ago, the nation’s Legislative Assembly passed the so-called “Bitcoin Law,” which allows the cryptocurrency to be used alongside the U.S. dollar.
Since 2001, the U.S. dollar has been the only official currency in the Central American nation. However, due to the World Bank’s decision not to help the Salvadoran government, the state implemented its own ”innovative” system.
Following the announcement of making Bitcoin a legal tender, El Salvador has proceeded with transition. The state began installing Bitcoin ATMs, which will allow its citizens to convert the cryptocurrency into U.S. dollars and withdraw it in cash. Yet this is only the first step towards the government’s plan to make the token legal tender.
According to the plan, the government will install 200 teller machines along with its digital wallet called Chivo, a local term for ‘cool.’
The President, Nayib Bukele, announced on Twitter the transactions will be commission-free. This means adopting Bitcoin will save Salvadorians around $400 million per year in fees for receiving remittances from overseas.
He also added that there will be 50 financial total branches giving the option to withdraw or deposit money.
También habrán #CajerosChivo en todas partes y podrán retirar en EFECTIVO, las 24 horas del día y SIN COMISIONES, por más que la oposición diga lo contrario.— Nayib Bukele 🇸🇻 (@nayibbukele) August 23, 2021
El problema para ellos es que podrán convencer a algunas personas de que sí habrán comisiones, pero solo hasta el 7 😘 pic.twitter.com/H8gkYTEucc
How Risky Plans Are Born in El Salvador
The number of US dollars in circulation increased by 32% between February 2020 and May 2021. The money has done well to prop up domestic financial institutions. However, El Salvadorian banks have not received the large injections of cash, which led to a decrease in purchasing power for those who rely on dollars overseas. Therefore, this led President Bukele’s statement that the actions of central banks are damaging economic stability in El Salvador. Even if that is not the intention of the central bank, efforts to pump cash into the economy still required a change.
Nonetheless, the plan is not just a hedge against a deflationary US dollar. It could also have a considerable impact on the remittance industry.
When Does This All Start?
El Salvador’s Bitcoin law will take effect on September 7th, when Salvadorians will finally be able to download the government’s Chivo digital wallet. Citizens can also enter their ID number and receive $30 in Bitcoin.
Finally, the government has set up a $150 million fund to support the conversions. Let’s hope the size of the fund will be enough to cover unexpected damages or costs; perhaps the plan will be a success?
On The Flipside
- As estimated, El Salvador’s citizens will save up to $400 million/year in remittance fees. The government has also allocated $150 million to help with the transition. All of this sounds like a good plan. However, there are still some dangers waiting to come to light. Most of the country’s population does not have a bank account, and 23% of GDP comes from remittances from the large emigrant community working abroad, benefiting about 360,000 households. Perhaps it might shake the financial system a bit too much?
- Environmental and transparency concerns as well as uncertainty about Bitcoin’s capacity to ever be suitable for making everyday payments is still up in the air. Therefore, only time will show if this major experiment will turn out to be successful.
- On the other hand, El Salvador is a leading example, demonstrating what is possible for other countries in the nearest future. Fortune favors the brave.
Why You Should Care?
El Salvador is the first country to accept Bitcoin as a legal tender. With ATMs popping up, the state is making the first transition steps. It is only a matter of time before the world sees if the massive conversion will pay off. In case of a positive outcome, other countries may soon start considering the same path – changing the lives of ordinary people.