It has been an interesting year for Bitcoin. The cryptocurrency has seen ups and downs, it has seen bans in countries like China, and in other places, it has become legal currency. One of those places is El Salvador, a struggling country looking to pull itself out of financial trouble. Can Bitcoin save El Salvador?
Bitcoin is Legal Tender in El Salvador
As of September 7th, 2021, Bitcoin has been legal tender throughout El Salvador. This means that every business that operates there must accept Bitcoin for goods and services. When the announcement was made, Salvadorians were given the opportunity to download an app that allowed them to receive $30 worth of Bitcoin. This was an effort to rollout the new currency and make it accessible to everyone. In addition to the app, called Chivo, the government installed more than 200 ATM machines that can convert US Dollars, the official currency of El Salvador, into Bitcoin, which is also considered legal tender.
In just two months, Chivo is already on platforms for merchants across the country, and even major companies like McDonald’s and Starbucks have updated their software in the country to accept Bitcoin. Even Volaris, an airline in El Salvador, has announced that it is going to accept Bitcoin, making it the first airline ever to accept Bitcoin for travel.
Officially, the move to accept Bitcoin is a new way to allow the people of El Salvador to access additional payment methods. This is important for a country where more than 75% of the people don’t have easy access to banks. The adoption of Bitcoin also means that companies that are deemed “too risky” to be supported by the banking industry can now be part of the financial game.
What Can Bitcoin Bring to El Salvador?
With Bitcoin becoming part of normal life in El Salvador, even those Salvadorians who work abroad can jump in. In fact, approximately $6 billion, approximately 23 percent of the GDP of El Salvador, was used in cross-border transactions.
There is also concern that this mass adoption of Bitcoin could harm the environment, as these transactions typically require a lot more electricity than the country is used to using. However, it seems like the government has thought of this, too. The President has asked for plans to create Bitcoin mining sites with totally clean and renewable resources with power coming from thermal sources, including volcanic power.
This might sound insane, but the plan is already in motion. Volcanic power has helped the country begin mining, and though it is not a huge amount, it is greatly significant as geothermal energy isn’t often used in this way.
Some people wonder if the adoption of El Salvador’s Bitcoin plan will or won’t help it in negotiations with the International Monetary Fund (IMF). Currently, the country owes the fund, and it is looking for a loan of $1.3 billion. However, the IMF has previously mentioned that it sees issues with using cryptocurrency, and even Moody’s has stepped in and warned that this adoption could topple the country’s position with the IMF.
The biggest problem here is that Bitcoin is extremely volatile, and this could be a huge challenge if people in the country decide that they want to be paid in Bitcoin as a salary currency. What could happen is that their monthly salaries could also be extremely volatile, and they could see huge fluctuations in salary from one month to the next. Sure, people could make a ton of money, but like investors of Bitcoin, they could also lose everything. That’s a big risk for a country that is already millions and millions in debt.
Can Bitcoin save El Salvador? Only time will tell.