In October 2021, El Salvador made headlines as the first country to accept Bitcoin as legal tender. Led by President Nayib Bukele, the initiative focuses on transforming the country’s economy, minimizing reliance on conventional financial systems and boosting development. While Bukele’s policies have drawn both praise and condemnation, the truth is that there is no turning back for him in his mission to integrate El Salvador into modern economic operations.
Bitcoin Editors: The Early Days in El Salvador
Both the US dollar, El Salvador’s official currency, and the inclusion of Bitcoin were envisioned as catalysts to bring financial meaning to Salvadoran citizens by increasing opportunities for foreign investment and financial inclusion. El Salvador’s economy is clearly in need of financial alternatives, as it is dominated by remittance inflows and a large unbanked population base. Statistics show that around 70% of Salvadorans do not have access to traditional banking. On the other hand, Bukele wanted to bring Bitcoin to his citizens so that they could choose a decentralized financial system that does not serve the purposes of traditional banking.
The government later developed this further with the introduction of the “Chivo Wallet”, where Salvadorans were exposed to bitcoin wallets through software and introduced to small pieces of bitcoin provided by the government to encourage people to use this innovative technology. However, the goal was not only to make people understand cryptocurrencies, but also to give people the ability to make and receive payments without the need for banks, with very low transaction costs.
Economic Opportunities
According to Bukele, the use of cryptocurrencies will boost economies and encourage investment, especially in remittances, which make up a large portion of the country’s GDP. One of the most manageable sectors when it comes to remittances is Salvadorans, who send billions of dollars every year. However, the amount of money families receive from relatives far from home is much less due to the heavy service costs associated with sending remittances. With the increased use of Bitcoin, the people of El Salvador could benefit by having more money go directly into people’s pockets due to the lower fees associated with sending money.
The long-term viability of Bukele’s vision will only be achieved if Bitcoin’s price volatility does not negatively impact El Salvador’s stability and, conversely, does not affect the success of what is envisioned as Bitcoin City as an investment hub. If Bukele’s experiment is successful, it could inspire other developing countries looking to operate in decentralized financial systems to try the same.
Conclusion
President Nayib Bukele’s endorsement of bitcoin and his version of the economic metamorphosis is unprecedented in national leadership and development. It is true that the risks are huge even at present one of the reasons being the the expectation is extremely high. But, the possible upside is transformational for El Salvador as a country making the world sit up and take notice with its digital finance offerings as a frontrunner. It is likely that as the world watches this experiment develop, Bukele who is currently holding the reigns will steer the narrative of how the world looks at cryptocurrency and whether it can accelerate economic growth for nations.
