El Salvador adopts Bitcoin as legal tender

(8 Sep 2021) LEAD IN:
El Salvador became the first country to adopt Bitcoin as legal tender Tuesday.
The rollout stumbled in its first hours, and many in El Salvador are on two minds about the move, critics are also worried the currency’s lack of transparency could attract increased criminal activity to the country.

STORY-LINE:
El Salvador is the first country to adopt Bitcoin as legal tender on Tuesday ( September 7, 2021).  
But soon after the value of Bitcoin plummeted early Tuesday, dropping from more than $52,000 per coin to $42,000, before recovering about half of that loss - an example of the volatility that worries many.
President Nayib Bukele made the announcement in June, pitching the idea as a way of bringing those living the country more financial freedom.
Bukele has said the cryptocurrency - originally created to operate outside government controlled financial systems - would help attract investment and save Salvadorans money when they transfer earnings in the United States back home to relatives in El Salvador.
Garrick Hileman is head of research, Blockchain.com and a visiting fellow at the London School of Economics.
"There's very practical aspects to to this move. One is there's very high costs with with international remittances or international payments, which are a very significant percentage of El Salvador's economy, 20 percent or more, it's estimated, comes from like payments from workers overseas to to El Salvadorians back home," he says.
It's estimated that around 70% of Salvadorans don't have a bank account and Hileman says the move could bring educational benefits in terms of managing money.
"Getting people more literate on finance is a global challenge, particularly in a country like El Salvador, where so few people have access to the financial system."
The rollout got off to a shakey start, stumbling in its first hours.
President Nayib Bukele said the digital wallet used for transactions was not functioning.
For part of the morning, El Salvador’s president became tech support for a nation stepping into the world of cryptocurrency.
Bukele marshaled his Twitter account - with more than 2.8 million followers - to walk users through what was happening.
Bukele explained that the digital wallet Chivo had been disconnected while server capacity was increased.
He encouraged followers to download the app and leave comments about how it was going.
The government has promised to install 200 Chivo automatic tellers and 50 Bitcoin attention centers.
The government will back Bitcoin with a $150 million fund.
To incentivize Salvadorans to use it, the government offered $30 worth of credit to those who use Chivo.
Despite Bitcoin's volatility on Tuesday Garrick Hileman believes the president's announcement could create a positive momentum, push the price of Bitcoin up and encourage a savings culture.
"It might stabilise or help, help the price of Bitcoin go up, which is certainly going to make the experience of owning Bitcoin, I think, better for the average El Salvadorian," he says.
Three face-to-face public opinion surveys performed recently showed that most Salvadorans did not agree with the government’s decision to make Bitcoin legal currency.
In June the Legislative Assembly enacted the Bitcoin law, and the Central American Bank for Economic Integration is providing the government with technical assistance.
The law says that Bitcoin can be used for any transaction and any business with the technological capacity to do so must accept payment in the cryptocurrency.
Bitcoin joins the U.S. dollar as El Salvador’s official currencies.

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