El Salvador becomes first country to adopt bitcoin as national currency

The small and poor Central American nation on Tuesday became the first country in the world to adopt bitcoin as legal tender, allowing Salvadorans to buy a cup of coffee, get a haircut or even pay taxes and home loans. allowed to use cryptocurrencies.

To get them started, the administration of 40-year-old El Salvador President Nayib Bukele will spend more than $225 million. The plan includes a $30 credit in bitcoin for those who take Chivo, slang for “cool,” a government-run e-wallet that can be used to purchase bitcoin or in US dollars.

The government is also launching a network of 200 bitcoin ATMs and with employees building a series of stylish, Chivo-brand kiosks that will introduce consumers to bitcoin in plazas across the country.

The online launch got off to a bang in the early hours of Tuesday. The government-run Chivo Wallet was no longer visible on major app stores hosted by Apple Inc. and Alphabet Inc.’s Google at midnight local time. It appeared on Huawei’s App Store around 2 pm local time.

Bitcoin enthusiasts around the world showed their support for El Salvador by buying $30 worth of bitcoin on Tuesday. Bitcoin price declined 1% to $51,350 from Monday’s 5 p.m. ET level.

“We call it B-Day because we are very curious to see how the ecosystem develops,” said Jose Luis Guillen, founder of Coinex, a Central American forex platform for buying and selling bitcoin or USD. said. Coinex aims to be one of the first foreign bitcoin service providers to be licensed from a central bank.

Its adoption will be closely monitored by crypto advocates, global financial institutions and governments around the world.

“This is a very important step in the evolution of bitcoin,” said Garrick Hillman, head of research at Blockchain.com, one of the world’s largest cryptocurrency trading firms.

The stakes are high for a country indebted to 6.5 million. Economists say bitcoin’s sharp volatility threatens to dent tax revenues and foreign exchange reserves of the government, which has neither the policy tools nor the financial firepower to deter speculative attacks.

“The government is betting more than $200 million in a virtual casino, and that’s taxpayer money,” said Ricardo Castaneda, senior economist at the Central American Institute for Fiscal Studies, a think tank.

The Bukele administration has also touted warnings from creditors such as the International Monetary Fund, which advise against adopting privately issued tokens that bypass the authorities and open doors for illegal transactions.

Government officials say the adoption of bitcoin will lead to affordable financial services in a country where an estimated 70% of the workforce works in a vast underground, cash-based economy.

Many business owners like the government’s initiative because it broadens payment options for customers with an easy-to-use mobile app that eliminates costs like credit-card fees that banks charge merchants.

“My mother believes bitcoin is the devil’s thing, but bitcoin has a lot of benefits,” said Fernando Alvarenga, whose family-owned business uses metal bed frames and the popular coarse corn from Pupus, El Salvador. Builds industrial griddles for making tortillas.Since the adoption of the US dollar as the national currency in 2001, Alvarenga sees the use of bitcoin as another step towards financial innovation and diversification.

The bitcoin plan caught Salvador by surprise when it was first unveiled in June. US crypto entrepreneur Jack Mallers, wearing a baggy hoodie and baseball cap, presented the initiative at a conference in Miami under the headline: “One Small Step for Bitcoin, One Giant Leap for Mankind.”

Mr Mallers opened the floor to a video recording in English by Mr Bukele, an outspoken businessman known for his leather jacket and baseball cap, widely used in 2019 by voters weary of violence and poverty Was chosen as a political outsider.

“Great ideas are beautiful and have great power,” said Mr. Bukele. After Mr Bukele announced that he would send a bill to the National Assembly to make bitcoin legal tender in El Salvador, an enthusiastic crowd stood up and applauded. The three-page bill was passed summarily a few days later.

Jorge Husbin, owner of clothing stores and head of El Salvador’s Chamber of Commerce and Industry, said he was shocked when he heard about the announcement. He said the initiative was taken without consulting stakeholders or the private sector, and the rules that were disclosed at the last minute are inadequate.

“If a customer comes in to pay with bitcoin, I am not ready,” Mr. Hasbin said. “We could have ridden the wave in a positive way, but the way the law was put in place was not positive.”

Some Salvadorans got their first taste of bitcoin several years ago in the fishing village of El Zonte on the Pacific Coast, which has become a magnet for foreign surfers due to its steady stream of waves.

Its 3,600 residents began embracing bitcoin in 2018 with the support of US donors through the development of Bitcoin Beach, a local e-wallet that now has 35,000 users nationwide. Hope House, a local charity group, began using cryptocurrencies to pay for social efforts such as school tuition and beach-lifeguard employment programs.

Once word got out, the use of bitcoin spread from mom-and-pop stores to sleek espresso bars, said Jorge Valenzuela, one of Hope House’s founders.

“We are about to see El Salvador transform from a dangerous country to a country with crypto assets,” he said.

The official use of bitcoin comes as Mr Bukele faces growing economic constraints, a wide budget gap and limited access to debt markets. Diplomatic relations with the Biden administration have been strained as international organizations have accused Mr Bukele of exercising authoritarian control over the country.

Legislators from Mr Bukele’s ruling party fired all members of the country’s top court in May. Newly appointed judges ruled late Friday that the president could serve two consecutive terms, allowing Mr Bukele to stand for re-election. The US embassy in El Salvador said the ruling violated the country’s constitutional ban on immediate re-election.

Although Mr. Bukele has one of the highest approval ratings among Latin American presidents, his bitcoin initiative remains highly unpopular. According to a survey released earlier this month by the UCA University of El Salvador, more than 65% of Salvadorans do not want the government to spend taxpayer money on adoption, and 80% have little or no trust in bitcoin. .

The International Truckers Association of El Salvador said in August that allowing businesses to accept bitcoin was essentially curtailing economic freedom.

In a sign of how the bitcoin issue has made for strange bedfellows, hundreds of veterans of the country’s Civil War—retired soldiers and pre-conflict guerrilla fighters that killed more than 75,000 people in the 1980s—last month performed together. El Salvador’s Ministry of Finance demanded pension benefits and assurances that payments would not be made in bitcoin.

“Bitcoin is for countries with more advanced technology and stronger economies,” said 56-year-old Jose Alberto Amaya.

“It’s a wild economic adventure,” said Juan Manuel Pineda, a former Marxist guerrilla who worked as an explosives expert in the Farabundo Martí Liberation Front. “How are we going to use bitcoins to access the internet if we don’t have smartphones or even money?”

Even some crypto advocates are reluctant to use the state-run Chivo e-wallet due to privacy concerns.

“You hand over all your data to the government, your financial activities, what goes out and what happens,” said Osvaldo Serrano, owner of Smart Pet SV, an online pet-food delivery service. “But I expect people to spend the $30 given by the government on pet food.”

There are security risks because the funds held in Chivo Wallet are controlled by the government on behalf of its citizens. The risk of such fund centralization attracts hackers, notes Mr. Hillman of Blockchain.com.

Financial services companies, which are the main channel for the $6 billion remittances El Salvador receives every year from immigrants living in the US, will accept payment in bitcoin, but the funds will be converted into dollars immediately.

Officials say their biggest concern will be how to prevent federally regulated banks in the US, which provide financial services to banks in El Salvador, from cutting ties because of due diligence and compliance risks.

“Since El Salvador will have two currencies, the question is, will the bitcoin ecosystem get its US dollars through El Salvador and will the US be okay with that?” Caitlin Long, chief executive officer of Avanti Bank, which provides cryptocurrency services to institutional. investor.

This story has been published without modification to the text from a wire agency feed