How Bitcoin became the national currency of El Salvador
In June 2021, the President of El Salvador, Nayib Bukele, introduced a bill to legalize Bitcoin. Congress approved the proposal, and on September 7, 2021, Bitcoin became the national currency of El Salvador on a par with USD.
Bukele believes that the legalization of Bitcoin will help improve the country’s economy, simplify financial transactions and make El Salvador more attractive to foreign investors.
The president’s team tried to popularize Bitcoin as a means of payment:
🏷 Citizens were offered discounts on payments in crypto. For example, by purchasing fuel in BTC, you can save $0.2 per gallon ($0.045 per liter
🔄 Crypto-fiat ATMs have been installed in the country for easy conversion of Bitcoin into dollars and back.
🙋 Consultation points have appeared on the streets where you can ask questions about cryptocurrency.
👛 The authorities launched the national crypto-wallet Chivo, for registration in which you could get $30 in bitcoins for nothing.
🌋 Bukele announced the start of construction of a Bitcoin city in which every citizen will be able to mine BTC using the energy of volcanoes.
And the president himself is conducting explanatory work. He most often answers questions about cryptocurrency in the country on his Twitter.
Criticism
A wave of protests took place across the country - everyone was afraid that this would provoke an increase in inflation.
Large financial organizations also criticized legalization:
💸 The International Monetary Fund saw risks to El Salvador’s macroeconomy.
🌱 The World Bank was also skeptical about the actions of the authorities - they believed that the legalization of Bitcoin would worsen the environment (due to the carbon footprint from mining) and reduce transparency in the country’s financial market.
Let's see if the negative predictions came true.
Against the backdrop of the legalization of Bitcoin, El Salvador's GDP increased from $29.4 billion in 2021 to $32.4 billion in 2022, and $33.4 billion is expected in 2023
Along with the growth of GDP, due to the legalization of Bitcoin, goods and services have become more expensive in the country - this is evidenced by the consumer price index.
It turns out that the legalization of Bitcoin did not really help tame inflation. But here, too, the authorities of El Salvador found a solution - increasing wages. According to Statista, from 2021 to 2022, citizens' income increased by 7% with inflation at 5%. This replenishes and even overcompensates for losses.
The authorities believe that overall the decision was beneficial. Bukele claims that the country has seen many new businesses open and unemployment has fallen, while tourism has increased by 30%. Local regulators say the legalization of BTC has made El Salvador more attractive to foreign investors. Also, according to the new rules, anyone can obtain citizenship of the country for investing $1 million in Bitcoin or USDT into the economy of El Salvador.
How many bitcoins does El Salvador have?
At the end of 2023, the authorities of El Salvador have 2,381 bitcoins worth $104.8 million. This is 0.011% of the total BTC issue of 21 million coins. Only the USA (207 thousand BTC), China (194 thousand BTC) and Ukraine (46 thousand BTC) have more.
The average price at which El Salvador buys bitcoins is $42,433. For comparison, the average purchase price from MicroStrategy is $36,785, and from Tesla is $34,000.
A path for each country? In the future - yes, now - unlikely
Although bitcoinization has benefited El Salvador's economy, traveler experience suggests that the government's plans have not fully materialized, and for good reason. Crypto-fiat transactions in the country are too expensive and time consuming. To exchange Bitcoin for dollars or back through crypto ATMs you need to pay about 5% commission, and the operation itself can take half an hour.
Many citizens, despite the propaganda of switching to cryptocurrency, do not want to interact with digital assets. Some people simply don’t understand how Bitcoin works, others don’t see the point in exchanging their usual dollars for some kind of digital coins.
Also, only 12% of stores in El Salvador accept Bitcoin, so you can’t survive in the country with cryptocurrency alone.
Salvador: we move towards the future with grief in half
El Salvador is definitely changing for the better: after the legalization of Bitcoin, many new businesses opened, wages increased, new foreign investors entered the market and there were more tourists. It is not necessary to make BTC your national currency, you should at least not ban it, but, if possible, introduce it into the economy, but not as Russia does, “the powers that be have everything, the people have nothing”
