Two years ago, El Salvador stunned the world by becoming the first country to make bitcoin an official currency. Journalists from around the world traveled to the Central American nation of 6.3 million people, known for its beaches and its diaspora in the United States, to document the new monetary reality. September 7, 2021, when the new cryptocurrency law came into effect, was an atypical moment in which a small country briefly held the attention of the entire world.
Interest has waned, but the experiment continues. It is tempting to classify the Bitcoin Law — the name for the legislative project that made the digital asset legal tender — as a success or a failure. But nothing is so simple in President Nayib Bukele’s El Salvador. The country’s decision to make bitcoin an official currency is difficult to analyze because it is an opaque experiment with several different objectives: financial inclusion, revenue for the public treasury and building the reputation of the president.
The experiment began with several bitcoin purchases by the Bukele government. The exact amount of bitcoin that El Salvador has in its international reserves is not known, since the government does not keep a public record. The closest thing that exists to a purchase announcement are Bukele’s brief posts on social media. The website nayibtracker.com maintains its own account and estimates that El Salvador has lost 37% of the value of its investments in bitcoin, since the cryptocurrency began to fall in 2021. That’s the equivalent of $45 million. It is estimated that El Salvador currently has $76.5 million worth of bitcoin. As often happens in the crypto world, the website does not include information about the bitcoin owners or who manages the assets.
When introducing the currency to the population, the idea was that it be used in all types of transactions: from buying street food to a property. With this goal in mind, the government opened a digital wallet called Chivo, and gave every citizen the equivalent of $30 in bitcoin. But hundreds of the Chivo accounts were hacked, and the money was stolen along with the account owner’s identity.
This perhaps scared many in El Salvador. One of the benefits of cryptocurrencies is the speed with which remittances can be sent from abroad — an advantage that was promoted by the Salvadoran government. But so far this year, only 1.3% of remittances have been transferred using digital wallets that use cryptocurrencies, according to the most recent data from the central bank. In comparison, 4% of remittances sent to Mexico are made through cryptocurrencies, according to the specialized firm Chainalysis.
Last week, an investment research firm called Ark Invest made waves on social media when it published a report claiming that bitcoin adoption in Argentina surpasses that of El Salvador. “Understandably, the citizens of El Salvador prefer to transact in USD, which became legal tender in El Salvador in 2001 and has protected purchasing power from the inflation and devaluations that have ravaged other countries in the region,” stated the report signed by analyst David Puell. “In contrast, the price of bitcoin has been quite volatile in the face of growing pains as it endeavors to evolve into a monetary system with increased liquidity and global adoption.”
“This news makes a lot of sense,” said Mónica Taher, vice president at RocketFuel, a global cryptocurrency payment processing company. Until October, Taher was the director of technology and innovation for the Bukele government’s business promotion agency, InvestSV. In addition to the size difference between Argentina and El Salvador, a cluster of technology companies has been growing organically in Argentina for at least two decades, and today are industry leaders, explains Taher.
During her time in the government, she was in charge of attracting and guiding companies interested in operating in El Salvador. “An avalanche of companies came — we didn’t know what to do with them all,” recalls the former official. “Everyone was excited, especially the first year, and it was very nice to see a kind of reverse migration: it wasn’t the Salvadorans who were migrating to the United States, now it was foreigners from every country in the world there were who decided to move.”
Seeing the interest of companies in El Salvador, the Central African Republic announced in April 2022 that it would make bitcoin and other cryptocurrencies legal tender. But their experiment failed, and less than a year later Congress reversed the legislation.
“The goal, for me, of using bitcoin in El Salvador is to increase people’s economic freedom so that there are no intermediaries and, within that, to empower women to control their own finances,” said Taher. But “if there is no coherent educational process, mass adoption will take a long time in the country,” she warned.
A few months ago, the Bukele government granted Bitfinix — a company founded in Hong Kong in 2012 — the country’s first license for digital assets, such as equities and bonds. Bitfinix and its sister company, Thether, had to stop operating in New York in February 2021, when the New York Attorney General’s Office declared that they “recklessly and unlawfully covered-up” losses of $850 million. A few months later, U.S. regulators fined Tether Holdings $41 million for making untrue or misleading statements by claiming that its token was a stablecoin, with its value pegged to a fiat currency.
The move to bitcoin has been an undeniable success for El Salvador, says Andrés Engler, a journalist specialized in cryptocurrencies and former editor for Latin America of the crypto website Coindesk. “In terms of press, it put Bukele in the headlines,” he said. “That is indisputable. With respect to the crypto industry, El Salvador today is a strong figure. If you ask anyone in the industry about El Salvador, they will recognize it and will probably name Bukele straight away. From that point of view, it seems to have been effective.”
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