How is the economy of El Salvador after adopting bitcoin as the official currency

El Salvador became the first country to adopt bitcoin as its official currency, a decision that divides experts’ opinion. Right on its debut, on Tuesday (7), the currency price dropped by more than 10%, below US$ 43 thousand. But he ended up recovering the next day.

The decision was not well accepted by the Salvadoran population, who took to the streets in protests against the government of President Nayib Bukele.

According to experts heard by CNN Brasil Business, the measure is “complex” and is in the “acceptance and experience” phase. And it still brings a scenario of uncertainty in an economy already with low global power.

Walter Grande, economics professor at Ibmec (Brazilian Institute of Markets and Capitals) understands that, even with the official cryptocurrency in El Salvador, it is necessary to measure the impacts of using a digital currency on the local population.

Walter believes that the initiative could serve as a reference for other countries, but highlights the “complexity” of the change, added to the government’s lack of dialogue with Salvadorans.

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“The world is digital. The trend is for central banks to gradually adopt cryptocurrencies. Of course, with care and safety for users, and under state control. Virtual currencies did not arise for the purpose of being controlled by large banks. However, I think it is innovative and important”, says Walter.

Since June — the month the Bitcoin Law was passed in El Salvador — local people have occupied the streets of the capital, San Salvador, displaying posters with phrases such as “Bukele, we don’t want bitcoin” and “no money laundering”.

According to the El Salvador Chamber of Commerce and Industry, a survey carried out by them indicated that the population’s fear is due to the fact that they do not understand how the new official currency works and because of its volatility.

Long way

The professor at Ibmec emphasizes that the officialization of the currency in El Salvador must go through a common process of acceptance by society — with regulations within the rules of the Central Bank, with ease for financial transactions, investment methods, savings and security.

“Everything a government can do to try to facilitate economic growth, income and employment generation, I think is valid. But it is still uncertain. You cannot have short-term perspectives,” says Walter.

Henrique Castro, finance professor at the Fundação Getúlio Vargas School of Economics of São Paulo (FGV – EESP), explains that the new determination is still going through a period of experience, and that the local conflicts between the population and the government and the oscillation of bitcoin must reflected in this process. “First, we need to know if the local population wants bitcoin, this is part of acceptance. The latest news is that no. And if it doesn’t work out?”, asks Henrique

The professor emphasizes that, first, it is necessary to present clear solutions to the economy, and not generate further doubts. “And a change without dialogue with the population creates doubt in people, in industry, in commerce. It is not possible to think in the short term. The government will need to encourage even more”.

For Henrique, the acceptance of the population will be impacted by facilitated payments – or not – brought by the currency, access to digitalization in the country and transparency about the local economy.

And, even with the promise of the local government to increase purchasing power and job creation, bitcoin will still need to adapt to the country’s economy, which the FGV professor points out as small.

“That leaves the expectation on how this measure will behave over time. However, it is something that can be reviewed in case of economic difficulties, something goes wrong and is not what the government expected. This was already done in 2001 with the colon – the local currency at the time – when they changed to the dollar”, he says.

Today, El Salvador has an industrial sector without major highlights, which operates in the food, beverage, oil, tobacco, textile, furniture and cement processing segments. The main export products are shrimp, coffee and, mainly, sugar cane.

Circulation

Bitcoin is currently the most traded currency in the world, with a market capitalization of over $1 trillion. Citing this data, Walter emphasizes that the choice of bitcoin as the official currency involves its appreciation and liquidity.

Henrique recalls that the variation of bitcoin, including speeches by famous people like Elon Musk, can keep the economy of El Salvador “stagnate, as it has been”. “The coin [bitcoin] it fluctuates a lot, even with the recognition and appreciation it has”.

In turn, the government argues that bitcoin can save the country US$400 million (R$2.1 billion) a year in transaction fees on funds received from abroad. The country’s economy relies heavily on remittances from abroad.

What changes?

The measure taken by El Salvador allows bitcoin to have the same rank as the US dollar, the official currency of the United States.

With the new law, establishments in the country must accept cryptocurrency as a means of payment when it is offered. El Salvador’s so-called Bitcoin Law excited the market, with repercussions on social networks and in the news.

On his Twitter profile, President Nayib said, however, that the use of bitcoin will not be mandatory for citizens. The president even offered incentives to use the currency on the day of its launch.

“Anyone who wants can download the official El Salvador application (wallet) to use the currency, called Chivo. Anyone who does, will receive the equivalent of $30 in bitcoin. If you don’t want it, you don’t need to download it.”

*With information from Reuters