El Salvador became the first country in the world to accept Bitcoin as legal tender on Tuesday, despite widespread domestic skepticism and international warnings of risks to consumers.
President Nayib Bukele’s administration claims the move will give many Salvadorans access to banking services for the first time and save around $ 400 million annually in remittance fees from abroad.
“Tomorrow, for the first time in history, all eyes in the world will be on El Salvador. #Bitcoin did this, “Bukele said on Twitter on Monday.
He got the ball rolling on Monday night by announcing that El Salvador had bought its first 400 bitcoins in two tranches of 200 and promising more would come.
The 400 bitcoins were traded for around $ 21 million, according to the Gemini cryptocurrency exchange app.
Recent public opinion polls showed that the majority of El Salvador’s 6.5 million residents reject the idea and will continue to use the US dollar, which has been the country’s legal currency for 20 years.
“This Bitcoin is a currency that does not exist, a currency that does not benefit the poor but the rich,” said the skeptic Jose Santos Melara, who last week took part in a protest by several hundred people in the capital, San Salvador .
“How will a poor person invest? [in Bitcoin] when they barely have enough to eat? ”
In June, the Parliament of El Salvador passed a law making it possible to accept crypto money along with the US dollar as a means of payment for all goods and services in the small Central American nation.
The bill, an initiative by Bukele, was approved within 24 hours of its submission in Congress – where the president’s allies have held a majority since March.
Experts and regulators have raised concerns about the notorious volatility of the cryptocurrency and the lack of any protective measures for its users.
The government is installing more than 200 Bitcoin ATMs, some of which are guarded by soldiers to prevent possible arson by opponents.
And Bukele has promised $ 30 to every citizen who accepts the currency.
“These are decisions that the administration and lawmakers have made without consultation,” said Laura Andrade, director of the Institute for Public Opinion at Central American University, who found in a survey that 70 percent of Salvadorans were opposed to the move.
“We see that people are not seeing any positive effects to significantly change their living conditions,” she told AFP.
Almost two-thirds of the Salvadorans interviewed for the survey said they were not interested in downloading the “Chivo” electronic wallet, which users can use to buy and spend Bitcoin.
Oscar Cabrera, an economist at the University of El Salvador, said the currency’s high volatility will negatively affect consumers and affect the prices of goods and services.
The currency fell below $ 30,000 in June, less than half of its all-time high of more than $ 64,000 just two months earlier.
For its part, the Salvadoran Foundation for Economic and Social Development (FUSADE) said it was “unconstitutional” to require merchants to accept Bitcoin as a means of payment.
Bukele, popular but under fire from multiple quarters for his efforts to increase his power, has accused his opponents of “sowing fear” among Salvadorans, few of whom have access to formal banking services.
Remittances account for more than a fifth of GDP in the dollarized economy, and they are mostly sent in dollars by an estimated 1.5 million expats through agencies like Western Union.
According to the World Bank, El Salvador received more than $ 5.9 billion from overseas nationals in 2020, mostly in the United States.
And the country is relying on that money to fuel a troubled economy that contracted 7.9 percent in 2020, largely due to the coronavirus pandemic.
Economists and international bodies such as the World Bank, the International Monetary Fund and the Inter-American Development Bank have raised concerns about the introduction of Bitcoin in El Salvador.
The United States has urged El Salvador to ensure “regulated”, “transparent” and “responsible” use of Bitcoin and to protect itself from “malicious actors” such as hackers demanding ransom.
Bitcoin has been criticized by regulators for its potential for illegal use – particularly in money laundering from criminal activities and the financing of terrorism.
But not all are against it, and according to Bukele, around 50,000 Salvadorans were using Bitcoin at the end of June.
Many of them are located in the coastal town of El Zonte, where hundreds of businesses and individuals use the currency for everything from paying utility bills to buying a can of soda.
Started as a project by an anonymous Bitcoin donor, the city was until recently equipped with El Salvador’s only Bitcoin ATM.