Bukele kicks off the bitcoin era in El Salvador hoping to boost the economy

The Savior operates from this Tuesday with the Bitcoin as legal tender on par with the dollar, an unprecedented fact in the world and promoted by a popular president, whom his allies are already paving the way for re-election.

The experiment, which generates doubts in the majority of the population and mistrust of specialists, is closely followed by promoters – with the hashtag “#bitcoinday” – and detractors, with “#noalbitcoin”.

“Like all innovation, the #Bitcoin process in El Salvador 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”, recognized Watch, in power since 2019.

The government has already bought its first 400 coins, at a market value of $21 million. In addition, the Chivo electronic wallet is available for the cell phone, loaded with an amount equivalent to 30 dollars in bitcoins for the citizen to start operating.

200 Chivo ATMs have been installed throughout the country to operate with bitcoins and dollars.

Volatility

In Salvadoran colloquial language, “Chivo” is a very good thing. But, for the detractors, “#NoesChivo” because it exposes state funds to a volatile asset.

When bitcoin was born in 2009, it was worth pennies on the dollar. Today its price exceeds $ 52,000. But in the last 12 months it has reached 62,000 or fallen to 35,000, depending on comments from investors such as Elon Musk on whether or not to accept it as a form of payment, or announcements of Chinese regulations.

For the same reason, economists and organizations such as the World Bank, the IMF and the Inter-American Development Bank (IDB) are skeptical about the measure.

“One of the first risks that we had noticed is that the costs of this experiment are paid by the population,” said the economist Ricardo Castañeda, of the Central American Institute for Fiscal Studies.

Stimulus to the economy

The use of bitcoin seeks to encourage the economy that, since its dollarization in 2001, has been stagnant with an average growth of between 2 and 4%. In 2020 it contracted 7.9% due to the covid-19 pandemic. It is projected that this year it will grow over 9%.

The daring measure, according to the government, will contribute to the bankingization of the population and will prevent the loss of some 400 million dollars in commissions for remittances that Salvadorans send from abroad through financial entities.

Diaspora shipments represent 22% of GDP. “All eyes in the world will be on El Salvador,” said the president.

The Bukele government, which has a large majority in Parliament, set aside $203 million from the budget for its plan. This amount finances the automatic convertibility of bitcoin to dollar, with an exchange rate “established by the market”.

The law obliges “every economic agent” to “accept bitcoin as a form of payment when it is offered to him by whoever acquires a good or service.”

The government clarified that if the commercial establishment does not want to receive bitcoins in its account, the “Chivo” application has the option to immediately convert the amount to its equivalent in dollars at the time of the transaction.

“Nobody is obliged to use it, so it must be remembered that the dollar is the reference currency for prices, wages and the country’s accounting records,” the government has clarified.

What this Central American country of 6.6 million inhabitants is seeking, according to Bukele, is “to break with the paradigms of the past” because “El Salvador has the right to advance towards the first world.”

A popular president

A recent survey by the Central American University (UCA) revealed that seven out of 10 Salvadorans indicated that they “disagree or strongly disagree” with the use of bitcoin and that they preferred in dollars. Although the popularity of the ruler exceeds 80%, according to the same university.

“The president maintains popularity because the people for whom the government, which are the masses, have not yet been affected by the measures he has taken,” explained the director of the communications school of the private Technological University (UTEC), Domingo Alfaro.

Bukele, a 40-year-old millennial, who often appears in public wearing an inverted cap and interacts with influencers on social media, has capitalized on discontent against the traditional parties Arena (right) and FMLN (ex-guerrilla, left), several of whose members are prosecuted for corruption.

Last week, a chamber of the Supreme Court appointed in May by the Congress related to Bukele, gave the green light for him to run for reelection. His current government ends in 2024.