Little El Salvador is the first country in the world to make Bitcoin a legal currency. Experts warn that the population is protesting.
At the end of August, it was probably also clear to the last person in El Salvador how serious President Nayib Bukele is with the plan to implement Bitcoin as a legal currency. The government had 200 ATMs set up throughout El Salvador, where the US dollar can be exchanged for the crypto currency from Tuesday onwards. Then the population should pay with the crypto coin at gas stations and in supermarkets. Taxes should also be able to be paid in this way. Parliament just passed a US $ 150 million state trust fund to hedge currency risk.
As the first state, the small Central American El Salvador is taking it seriously and upgrading Bitcoin to the official currency and thus a legal means of payment. Central banks, financial jugglers, scientists and governments all over the world are looking at this pilot project with great interest. It is an “experiment out of this world,” says Dante Mossi, President of the Central American Bank for Economic Integration (CABEI).
Bitcoin introduction: International Monetary Fund warns
The International Monetary Fund describes the project as “financially and regulatory” too risky and refused to support El Salvador with the introduction of Bitcoin. And the development economist and Central America expert Christian Ambrosius considers the project to be a “crazy idea” with dubious motives and an unknown outcome.
Head of state Bukele is also encountering resistance to the changeover among his 6.5 million inhabitants. As soon as the ATMs were installed in the state of Hesse’s greetings, there were again protests on the streets, as they had for weeks: Hundreds of workers and pensioners demonstrated against the crypto plans in the capital San Salvador. “Bukele, we don’t want Bitcoin” and “No to money laundering” were written on the banners. The elderly in the country in particular fear that their pensions will only be paid out in cryptocurrency in the future.
Majority of the population against Bitcoin introduction in El Salvador
In a survey by the University of Francisco Gavidia in San Salvador at the beginning of July, 77 percent of those questioned spoke out against the introduction of Bitcoin, they considered it “unwise”. And the opposition went to court over an alleged constitutional violation. Behind this is also the fear that Bukele will lead the country further into authoritarianism. He takes action against resistant judges and critical reporters, sometimes sends the military into parliament to enforce laws and secretly negotiates with organized crime. The United States, El Salvador’s most important partner, sees Bukele’s actions with growing concern.
At the beginning of June, the parliament, which is controlled by his party “New Ideas”, passed the two-page Bitcoin law overnight. The 40-year-old autocrat, who gives himself a hipster image with leather jackets, baseball caps and his Twitter diplomacy, justifies the introduction of Bitcoin by stating that the high costs of remittances for Salvadorans living abroad are eliminated or lower would. “Our people pay $ 400 million a year in transfer fees. These savings alone will be a huge benefit, ”said Bukele.
Much criticism of crypto law in El Salvador
Around a third of the Salvadoran population lives far from home, just over two million of them in the United States. The Salvadorans abroad transferred almost six billion dollars to their families back home in the previous year. About 20 percent of El Salvador’s gross domestic product comes from these cash transfers. Another argument: Less than half of the population does not have a bank account. “Everyone is watching how Bitcoin works in El Salvador and whether the costs for money transfers are falling sharply,” emphasizes CABEI boss Mossi, whose experts advised the government on Bitcoin implementation. Because El Salvador could be a model for those countries in Central America that have a similar economic structure to Honduras and Guatemala in particular.
As soon as the crypto law was passed, criticism raged. A country that has been trapped in a “crazy monetary system (dollarization)” since 2001 is moving towards an even crazier system. “It’s hard to come up with a reason why this might end well,” said Dani Rodrik, an economist at Harvard University, as one of the first to summarize his concerns.
Bitcoin: advantages for criminals?
Economist Christian Ambrosius, professor at the Latin America Institute at Freie Universität Berlin, is also skeptical and asks for whom the introduction of Bitcoin should bring advantages: “It was a head-over-head decision that was made with little preparation and little transparency It looks like Bukele has had the attention of global investors and the crypto community in mind rather than the good of its own people. Bukele is flirting openly with Bitcoin’s market capitalization, which is currently around $ 901.5 billion, and hopes that perhaps a few percent of that will be invested in his country in the future.
“Investors are actually happy and see the possibility of being able to convert a speculative currency into real goods,” says Ambrosius in an interview with the FR. But contrary to what the government argues, Bitcoin does not create “financial inclusion”. This would require opportunities for asset accumulation, protection against financial risks and access to cheap loans and insurance. This is not possible with a means of payment like Bitcoin.
Ambrosius suspects that Bukele wants to occupy a niche in the global financial sector with the Bitcoin economy, similar to Panama with its banks and tax models. With all the dangers that this entails, above all becoming the “starting point for money laundering and black market activities”. Crypto emerged from the idea of withdrawing financial transactions from the state and its regulation. In this context, it is noticeable that El Salvador terminated its cooperation with the corruption investigators of the International Commission against Impunity in El Salvador (CICIES) at the same time as the Bitcoin law was passed.
The economy also criticizes the Bitcoin law in El Salvador
The closer to September 7th, the more frequent the protests became. The tenor has always been that the use of Bitcoin is not in the interests of the population. Less than a week before the cut-off date, hundreds of protesters expressed their fear that the volatile value of Bitcoin could destroy people’s often scarce savings and incomes. “We know that this cryptocurrency varies dramatically in value,” said unionist Stanley Quinteros. “It changes from one second to the other and we have no control over it.”
Parts of the Salvadoran economy see it that way too. The Association of International Freight Companies (ASTIC) wants to protect itself against ups and downs in Bitcoin payments with a fee of 20 percent. The fears are justified: This year the value of a Bitcoin fluctuated between 24,111 euros in January and almost 50,000 euros in April. At the beginning of September the value was 42,100 euros. “With such a fluctuation, the dangers of corporate bankruptcies and personal bankruptcies increase,” said Pavel Vidal, Cuban economist at Javeriana University in Cali, Colombia, who dealt with the introduction of the cryptocurrency in Cuba. In El Salvador, where a third of the people live in poverty, this harbors great social explosives.