Social media and cryptocurrency fans have been hailing El Salvador’s move to become the first nation in the world to accept Bitcoin as a legal currency for everyday payments. Meanwhile, the International Monetary Fund (“IMF”) has claimed that the widespread use of cryptocurrencies will create ‘macroeconomic instability’.
Rather than entering the central bank vs cryptocurrency debate, this intel dispatch will focus on the specific case of El Salvador and its proposed implementation of a Bitcoin payment system.
A renowned economist in El Salvador had some reservations about the country’s preparedness, “The system will go live on 7th September, so it’s just around the corner, but the country is not ready. There is still no regulation of the law so it is not known how it will be applied. The Bitcoin law allows the experiment to begin but the government has set aside just USD 150 million, it’s nowhere near enough.”
“The system will go live on 7th September, so it’s just around the corner, but the country is not ready. There is still no regulation of the law so it is not known how it will be applied.”
Economist, El Salvador
A local tech entrepreneur had other concerns, “The law states that you can only change from Bitcoin into dollars through the Chivo wallet, a digital wallet owned and operated by the government of El Salvador. My understanding is that the Chivo wallet application is not even ready yet, so it needs to be finished, then people need to find out about it and register – it’s going to take a while.” The government has maintained that the app will be available to download on 7th September and that users will be given the equivalent of USD 30 to spend as an incentive.
The law obliges businesses to accept Bitcoin as payment but a survey by the El Salvador Chamber of Commerce and Industry found the vast majority of respondents did not want this. The economist we consulted saw much confusion ahead, “Despite people’s reservations, the system is mandatory according to the law. The big question is, how will this be enforced? How can you make people comply with the law if there is no regulation on sanctions? All of this still has to be implemented.” El Salvador’s Finance Minister has stated that the government would not force citizens to receive Bitcoin as payment, however, businesses will be forced to accept it in exchange for goods and services.
“My understanding is that the Chivo wallet application is not even ready yet, so it needs to be finished, then people need to find out about it and register – it’s going to take a while.”
Tech entrepreneur, El Salvador
The implementation of the new law has sparked some protests, with hundreds of protestors hitting the streets to voice their concern about the volatility and instability of Bitcoin and the lack of a proper process of consultation.
There are many in Latin America who see cryptocurrencies as an economic holy grail that will free their financial systems from the economic mismanagement of various governments and central banks. You need to appreciate the local context though, many of these people have been badly burned in previous economic crises and see no real change, they are desperate for any alternative to the current system.
Despite the recent media hype, it seems we are still some way from seeing these dreams become a reality, “The experiment in El Salvador is just that,” affirmed the economist, “I hope that we will learn something and inspire others but I worry about the potential consequences if things go wrong. The world will be watching.”