Thursday 29 September 2022

El Salvador will adopt bitcoin as currency amid strong skepticism

Different polls show that between 60% and 70% of Salvadorans disapprove of the decision

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29 September 2022 - At The Banks - BCCR

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Q24N – El Salvador will, on Tuesday, September 7, become the first country in the world to recognize bitcoin as a legal currency, amid strong skepticism and warnings from economists and international financial organizations.

“In El Salvador everything is expensive and Bitcoin is not the solution,” reads the poster of a protestor who on Friday participated in a protest against cryptocurrency. Photo AFP

The government of Nayib Bukele ensures that the controversial measure will contribute to the bankarization of the population and will prevent a loss of US$400 million in remittances that Salvadorans send from abroad and which represent 22% of the country’s GDP, although some experts question it.

In El Salvador, which dollarized its economy two decades ago, the majority of the 6.5 million Salvadorans reject the bitcoin promoted by Bukele and prefer to continue using the greenback, according to the latest polls.

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“That bitcoin is a currency that does not exist, it is a currency that is not going to favor the poor but the wealthy, because a poor person, what can he invest, if we barely have enough to eat?” José Santos Melara, a veteran of the civil war (1980-1992) who on Friday participated in a protest against cryptocurrency, told AFP.

Seven out of 10 Salvadorans indicated that they “disagree or strongly disagree” with bitcoin, which will circulate alongside the dollar, indicated a recent survey by the Central American University (UCA) that consulted 1,281 people in mid-August.

65.7% of the more than 1,500 consulted in another poll by the newspaper La Prensa Gráfica said they disapprove of the cryptocurrency.

The director of the Institute of Public Opinion of the UCA, Laura Andrade, assures that the population is resistant to bitcoin because they do not consider it a way to improve their economic situation.

“They are decisions [in a manner] without consultation that this administration has taken in conjunction with the legislators, and that we see that people do not perceive a positive impact to significantly transform their living conditions,” Andrade told AFP.

The UCA survey indicated that 65.2% of the population is not interested in downloading the electronic wallet “Chivo” necessary to make purchases and sales in bitcoins, and does not agree that the government grants the equivalent of US$30 as an encouragement to cryptocurrency users, as you have decided.

Despite the disapproval and criticism, El Salvador president Nayib Bukele is moving forward with making bitcoin a legal currency.

“High volatility”

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Economists and organizations such as the World Bank, the IMF and the Inter-American Development Bank (IDB) are skeptical about the adoption of bitcoin as a currency alongside the dollar.

It will have a “negative impact” on the living conditions of the population given the “high volatility of the listing price”, and “will affect the prices of goods and services,” says economist Óscar Cabrera, from the University of El Salvador.

Dealing with bitcoin will be like “the perfect storm in which we come on the Titanic and no one is driving,” Cabrera, former president of the Central Reserve Bank of El Salvador, told AFP.

The fact of being determined “exclusively by the market” makes bitcoin “highly volatile,” warned the Salvadoran Foundation for Economic and Social Development (Fusades).

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The Foundation also considers it “unconstitutional” to impose “the mandatory acceptance of bitcoin as a form of payment when it is offered” in any economic transaction.

Encouraged by a high public approval, but criticized by several measures considered authoritarian and that affect the independence between the powers of the State, Bukele defends his decision and has called the opposition “clumsy” for “scaring” the population about cryptocurrency.

The United States has asked El Salvador to have a “regulated”, “transparent” and “responsible” use of bitcoin, and “to protect itself from evil actors.”

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