El Salvador has just invested in 400 bitcoin amid criticism

7 Sep 2021

Image: © Ascannio/Stock.adobe.com

President Nayib Bukele thinks bitcoin will boost El Salvador’s economy, but almost seven out of 10 people in the country disagree with the move to make the cryptocurrency legal tender.

Hours before El Salvador became the world’s first country to make bitcoin legal tender, its president Nayib Bukele announced that the Central American nation had invested in 400 bitcoin.

“El Salvador has just bought its first 200 coins. Our brokers will be buying a lot more as the deadline approaches,” he said in a tweet yesterday (6 September), using the hashtag #BitcoinDay.

Earlier today, he tweeted to confirm the purchase of an additional 200 bitcoin.

Bukele’s is betting that making the world’s most popular cryptocurrency legal tender will boost the US dollar-based economy of El Salvador and encourage investors to spend more in the country. Domestic users will also get $30 in free bitcoin if they sign up for the national digital wallet Chivo.

But the move comes amid widespread scepticism over the rationale behind the big push for cryptocurrency in a country where nine out of 10 people do not fully understand what bitcoin is, according to the Central American University (UCA).

UCA conducted a poll with 1,281 Salvadorans and found that less than 5pc correctly identified bitcoin as a cryptocurrency, while 20pc of respondents indicated that they did not know what bitcoin was.

The poll also found that nearly 70pc of respondents disagreed with the government’s decision to make the cryptocurrency legal tender. Protests broke out in the capital San Salvador ahead of the legalisation date today (7 September).

Law adopted ‘without public debate’

Apart from the lack of knowledge around bitcoin among citizens, other concerns of the move include a general mistrust of the cryptocurrency, increased risk of money laundering, sharp fluctuations in the value of bitcoin, and the carbon footprint of mining.

“I’ve accepted bitcoin for about two months since I knew this was coming. I just had someone pay me $40 in bitcoin for a fare to the airport, but it’s rare. Only around 10pc of customers prefer to pay with bitcoin,” Salvadoran taxi driver Daniel Hercules told the BBC.

Another local, Jeanette Sandoval, told the BBC that she will not be joining the bitcoin bandwagon for her small grocery home delivery business because her customers will not pay using the cryptocurrency.

“In my country there are many people who are illiterate and hardly have a cell phone, not an intelligent one, but one of the old ones. They will not use it.”

From an economic perspective, local economist Ricardo Castañeda told the Guardian that the law was adopted too quickly and “without a technical study or a public debate”.

“I don’t think the president has fully understood the implications of the law, its potential to cause serious macroeconomic problems and convert the country into a haven for money laundering.”

Vish Gain is a journalist with Silicon Republic