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Bitcoin official currency in El Salvador

It’s ironic. Bitcoin was actually an anti-currency once. No state should have access to it, no central bank should get its hands on it. So now it is becoming the national currency.

This is not good. Even if El Salvador is only about as big as Hesse and generates as much in one year as the USA in one morning, Bitcoin as legal tender can cause great damage.

    (Imago / photothek - Thomas Trutschel) (Imago / photothek – Thomas Trutschel)Virtual Money – Are Digital Cryptocurrencies Like Bitcoin The Future?
There are now thousands of so-called crypto currencies. Bitcoin is one of the most famous that investors have also had an eye on. How does this virtual money work? An overview.

The common arguments all apply here: Bitcoin harms the climate. Bitcoin is also an unsafe currency because it is not secured by a central bank. When the money is gone, it’s gone. If the course fluctuates a lot, then it fluctuates.

Crypto paradise instead of tax haven?

Many have a lot to lose in the bet of Salvadoran President Nayib Bukele. Bitcoin could make the people in El Salvador poor, half of the population is already considered poor. For 20 years, the US dollar has been a solid national currency for the country. Why then is the president betting on cryptocurrency now without need?

One can only speculate about his motives. It is possible that he wants to make El Salvador a paradise for crypto investors. A crypto paradise instead of a tax haven. Also a business model. Especially if he also welcomes black money of all kinds. There are some indications of this. More and more drug lords are using cryptocurrencies to launder money. El Salvador is already a drug corridor for cocaine brought from South America to the United States.

Representatives of social organizations in El Salvador protest against the Bitcoin law, which allows cryptocurrency as an official means of payment (dpa / AA / Alex Pena)Representatives of social organizations in El Salvador protest against the Bitcoin law (dpa / AA / Alex Pena)

But what about the people? According to surveys, the vast majority of this does not hold up with Bitcoin. And that even before the very bumpy start, when most of the ATMs failed and the electronic wallets could not be uploaded or opened partly due to poor internet connections.

Bitcoin is only used by the largely poor population in one respect: It makes transfers from emigrants home to work cheaper. This diaspora makes up a third of all citizens and contributes a fifth to the gross domestic product. If these migrant workers can send money from Bitcoin wallet to Bitcoin wallet to their relatives at home, quickly and easily and without having to deduct up to a third of the transfer as commission – wonderful.

El Salvador is no good as a blueprint

But: The people in El Salvador are rightly afraid of handling money, the value of which fluctuated between the equivalent of around 8,500 and 53,000 euros in the past year alone. Speculators and savers can possibly get away with it if the value collapses by 70 percent within a short period of time. But for people in emerging markets whose pensions are in Bitcoin, this is a matter of life and death.

That is why El Salvador is not suitable as a blueprint for other developing and emerging countries, as many crypto enthusiasts believe. Financial inclusion is really desirable. But there have long been stronger alternatives. Neobanks, online banks that are by the way very popular in South America, provide all financial services, but without the environmental pollution and without the financial risks of Bitcoin.

The cryptocurrency has great potential. But only in countries with high inflation like Turkey or Vietnam. There the Bitcoin is often a valuable protection against permanent currency depreciation. However, it is not suitable as a means of payment in everyday transactions. The people of the country could pay a high price for the highly speculative bet of the Salvadoran president.

Sandra Pfister (Deutschlandradio / Bettina Fürst-Fastré) (Deutschlandradio / Bettina Fürst-Fastré)Sandra Pfister, born 1975 in Saarland, is an editor in the Economics and Society department. After studying history in Freiburg, Düsseldorf, Aix-en-Provence and Brussels, she graduated from the Georg von Holtzbrinck School for Business Journalists in Düsseldorf. After completing her traineeship at Deutschlandfunk, she regularly presented programs on Deutschlandfunk and WDR and most recently lived in London as a freelance writer and presenter for five years.

Hasan Sheikh
Hasan, who loves technology and games, is studying Computer Engineering at Delhi JNU. He has been writing technology news since 2016.


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