El Salvador became on Tuesday (7) the first country to adopt bitcoins as legal currency, an experiment that divides the opinion of experts.
On the one hand, proponents say it will reduce commission costs to billions of dollars sent from abroad.
On the other, critics of the change warn that adopting bitcoin could fuel money laundering.
The change means that companies must accept payment in bitcoin along with the US dollar, which has been El Salvador’s official currency since 2001 and will remain legal tender.
President Nayib Bukele, who has been pushing for the adoption of the cryptocurrency, says it will help Salvadorans save about the $400 million the government estimates is spent annually on commissions for remittances.
The 40-year-old president is popular with the public but has been accused of eroding the country’s democracy, including by the Biden government of the United States.
Doubts say bitcoin could increase regulatory and financial risks for the country, and polls show Salvadorans are concerned about the volatility of cryptocurrency, which could lose hundreds of dollars in value a day.
To the skeptical public, Bukele promised all citizens $30 in bitcoin if they signed a government digital wallet.
Before the launch, El Salvador bought 200 bitcoins, Bukele said, helping to raise the currency’s price above $52,000 for the first time since May.
By dawn on Tuesday, the wallet had not appeared on Apple Inc., Google and Huawei’s app download platforms, however, generating a series of tweets from Bukele, including one with a red “anger” emoticon.
The wallet was later made available by Huawei. Some citizens are optimistic.
“It will be beneficial… we have families in the United States and they can send money free of charge while the banks charge,” said Reina Isabel Aguilar, who owns a store on the beach in El Zonte, about 30 miles southwest of the capital, San Salvador.
ATMs will convert bitcoin to dollars
Known as Bitcoin Beach, the city of El Zonte aims to become one of the world’s premier bitcoin economies.
Before launch, the government installed ATMs that will allow bitcoin to be converted into dollars and withdrawn without commission from the digital wallet called Chivo.
This Monday (6), Bukele tried to moderate expectations for quick results and asked for patience.
“Like all innovations, El Salvador’s bitcoin process has a learning curve. Every path to the future is like that and not everything will be achieved in a day or month,” he said on Twitter.
Volatility and the possibility of money laundering cause fear
Cryptocurrency has been notoriously volatile, rising to more than $64,000 in April and falling nearly $30,000 in May this year.
The move to make bitcoin legal tender alongside the US dollar has clouded prospects for El Salvador’s quest for more than $1 billion in financing from the International Monetary Fund (IMF).
Analysts fear that the adoption of cryptocurrency could fuel money laundering in a country with serious problems of government corruption and organized crime.
Bukele has promised to clean up corruption, but the Biden government has recently put some of its close allies on a corruption blacklist.
In just two years in office, he has taken control of almost every level of power.
Last week, top judges appointed by his allies decided he could serve a second term.
Moody’s downgrades El Salvador’s credit
After the bitcoin law passed, ratings agency Moody’s downgraded El Salvador’s credit quality, while the country’s dollar-denominated bonds also came under pressure.
But Bukele, who does not shy away from the controversy, on Monday retweeted a video that showed his face superimposed on actor Jaime Foxx in a scene from ‘Django Unchained’, Quentin Tarantino’s film about American slavery.
The video showed Bukele whipping a slaver who had the IMF emblem stamped on his face. Later, Bukele erased the retweet.
In his own tweet, Bukele said: “We must break the paradigms of the past. El Salvador has the right to advance to the first world.”
(With reporting by Anthony Esposito and Nelson Renteria; additional reporting by Wilfredo Pineda in El Zonte, El Salvador; and editing by David Gregorio and Catherine Evans)