El Salvador, a country that despite having a government that is very open to the cryptocurrency policy, many of its citizens, perhaps due to lack of knowledge, resist this current change in its economic policy. Let's look at this a bit.
As I mentioned in a previous post, El Salvador was the first country in the world to recognize Bitcoin as legal tender in 2021 (in that year, since the first to adopt it as such was Japan in 2017), with the aim of facilitating remittances and financial inclusion.
Bitcoin as legal tender in El Salvador works as follows:
The Salvadoran government launched the Chivo digital wallet that allows citizens to receive, send and spend bitcoins without fees1.
The use of Bitcoin is voluntary and coexists with the US dollar as the official currency.
The government offers incentives to encourage the use of Bitcoin, such as giving away US$30 in bitcoins to every citizen who registers with Chivo and offering licenses to cryptocurrency companies that want to operate in the country.
The government also uses geothermal energy from volcanoes to mine bitcoins in an environmentally friendly and profitable way.
Some benefits that the government mentions with this economic adoption are:
Facilitate remittances from Salvadorans abroad, which represent 23% of the country's GDP.
Increase the financial inclusion of the most disadvantaged sectors, which do not have access to banking services.
Attract foreign investment and tourism from cryptocurrency enthusiasts.
But some warn of risks such as:
Bitcoin price volatility, which can negatively affect the economy and consumers.
The lack of regulation and supervision of Bitcoin operations, which can facilitate money laundering, tax evasion and fraud.
The opposition of international organizations such as the IMF and the World Bank, which have warned about the legal and financial implications of the measure.
The challenges that the government has identified are:
The low adoption of Bitcoin by the population, which shows distrust and ignorance about the cryptocurrency.
The lack of technological and educational infrastructure to guarantee access and proper use of Bitcoin.
The resistance of some political, social and business sectors, which question the legitimacy and appropriateness of the measure.
