Since 7 September, all businesses in the Central American state of El Salvador have by law been required to accept Bitcoin for all payments. This is paradoxical – a form of money designed to be beyond the control of governments has been adopted by a government. Go figure.
Anyway, El Salvador’s President, Nayib Bukele, (whose Twitter profile reads “Dictator of El Salvador”) grew tired of his country’s use of the US Dollar as its currency. He pushed through the Bitcoin law, making El Salvador the first country to adopt Bitcoin as its official currency. It’s not been universally popular.
The World Bank and the International Monetary Fund take a dim view of El Salvador’s elevation of Bitcoin to legal tender status. They think it will make the country a prime destination for money laundering and other illicit financial activity.
El Salvador’s economy depends on remittances sent home by about 2.7 million Salvadorans (out of a total population of 6.7 million) who live and work abroad. About 20% of the country’s gross domestic product (GDP) derives from these remittances, which cost around $400 million a year.
Since early September, Salvadorans have been able to have an official Bitcoin wallet, called a ‘Chivo’, which is slang for ‘cool’. The company which operates the network is called Chivo SA de CV. It’s a private company so is not subject to freedom of information laws. The President’s chief of staff, is a director of Chivo SA de CV. She is also on the U.S. State Department’s Engel List of corrupt officials.
Bitcoin’s well-known volatility struck shortly after El Salvador started using it as a currency – the price collapsed by $10,000 in three minutes shortly after 10 am on 7 September. It’s fallen below $43,000 since then. Bukele has Tweeted: “They can never beat you if you buy the dips”. I am not sure about his status as a financial adviser.
Chivo’s launch was plagued by many glitches, such as server malfunctions. For a payment system intended to empower the country’s impoverished, it’s remarkably badly thought-through. A payment system that reduced the cost of remittances would be useful, but one so dependent on internet access seems destined to fail in a country where only 34% have that access. Some 70% of Salvadorans have no bank account.
For a currency to become enduringly popular there needs to be trust that its value will not fluctuate wildly. Privacy is also necessary – no-one wants their use of money to be open to scrutiny. The jury is out on both these issues as far as El Salvador’s money experiment is concerned, but we will be following this project to see how it pans out and will keep you informed by reporting it here in Glint’s Bullion Bulletin.
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