El Salvador's Bitcoin Legislation
A cryptocurrency is a form of payment that can be exchanged online for goods and services, it works using a technology called blockchain - a system of recording information in a way that makes it impossible to change, hack or cheat the technology.
First introduced in 2009, with Bitcoin, most people found the idea of cryptocurrency skeptical, and stayed away from it, merely watching from the sidelines. Soon enough however, it started to boom as more and more people began to invest although no countries made any major decisions on it. This was until Turkey, Nigeria and Vietnam banned, or restricted bitcoin claiming it was dangerous as it could cause irreparable damage and had certain transaction risks. El Salvador, however, seems to disagree with these countries, and in June 2021 promised to start work towards adopting bitcoin.
This small country in Central America, does not have its own fiat currency and uses US dollars. Most of this population does not have access to formal banking channels, hence most experts believe this decision will boost financial inclusion. A lot of El Salvador’s GDP comes from remittances - transfer of money from its foreign workers. Their government hopes that Bitcoin could reduce fees on those cross-border transactions. El Salvador's government plans to create its own Bitcoin wallet called ‘Chivo’, which is slang for ‘cool’ in El Salvador. To kick start the program, the government is offering $30 worth of cryptocurrency to anyone who signs up for this wallet. The government hopes kids who previously dreamt of fleeing and crossing the borders into the US for any success, can now chase success in their own home country. The law-making Bitcoin legal tender entered into force on September 7th.
El Salvador does not have its own currency and relies on US dollars. In 1892, they created an official currency, called SVC - El Salvador Colon. It had a comparatively high value, priced at 2 Colons equaling 1 USD. However, after the country’s civil war ended in 1992, it rapidly depreciated. The government established a series of measures to promote economic growth. Additionally, to stabilize the economy, the Monetary Integration Act of 2001 took away the Central Reserve Bank’s exclusive right to issue currency. The dollar became legal tender and since then, El Salvador has been unable to print its own dollars. The colon has never officially been removed from the circulation as legal tender but has not been printed for the last decade either.
While this progressive change sounds risky but clean, some critics fear this could be a PR distraction from their young President Nayib Bukele’s power grab which began in May, when his party violated El Salvador’s constitution. This violation was covered up by the Government. Once revealed, it sparked minor protests across El Savador’s Capital. Of course, this revelation led to chaos, and critics believe El Salvador might be placing heavy pressure on their Bitcoin stunt to lead away from the truth.
El Salvador is facing many challenges technologically and financially. No regulatory framework for adoption has been published, and there are whispers of setbacks to the Chivo system. Many worried clients are contacting banks and threatening to withdraw their depositions, rather than risk exposure to volatile cryptocurrency markets. So far, no countries have had any major public opinion on this; however, most seem skeptical. The International Monetary Fund is against this move, concerned that this major change could sink El Salvador’s economy, and the World Bank has refused the request from El Salvador’s government to assist with Bitcoin Implementation. The world is just waiting, with bated breath as El Salvador pulls itself together and dives into this major change.