This week El Salvador became the first country in the world to take the legal course of Bitcoin, provoking a lot of speculation on how the smallest nation in Central America, which ranks among the poorest in the region, will go with a volatile cryptocurrency.
Yet for a small Salvadoran beach town, the crypt is already a part of everyday life. Businesses in El Zonte will be using it since 2019 after the launch of “Bitcoin Beach,” a program whose mission is to build a “sustainable Bitcoin economic ecosystem on the coast of El Salvador”.
“There are more than 50 establishments – from phone stands for minutes to vegetable and fruit vendors, shops, hardware stores, restaurants and hotels – that use Bitcoin for everyday transactions,” said Carlos Enrique Ortiz Novoa, who began accepting Bitcoin at Olas Permanentes, its hotel, restaurant and surf camp, in March 2020.
Now, the rest of the country is participating in El Zonte’s Bitcoin Experiment after the country’s legislative assembly passed a law prompted by 39-year-old Salvadoran President Nayib Bukele forcing companies to accept it as payment for goods and services alongside the United States dollar, which has been the country’s official currency since 2001.
Bukele, who was elected in 2019 by the center-right Grand Alliance party for National Unity, has since festooned his Twitter account into brand crypto. His Twitter profile now features a photo of him with Bitcoin’s “laser eyes” and a thread running through a project to mine Bitcoin using energy from one of El Salvador’s volcanoes.
I just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to implement a plan to offer structures for #Bitcoin extraction with very economical, 100% clean, 100% renewable, 0 energy emissions from our volcanoes 🌋
This is evolving rapidly! 🇸🇻 pic.twitter.com/1316DV4YwT
– Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
The first adopters of El Zonte shared their excitement. Mike Peterson, director of Bitcoin Beach, said the city’s pilot project was always aimed at demonstrating “Bitcoin’s power to elevate the poor and those who have been locked out of the traditional financial system.”
“We’ve seen the impact it can have on people’s lives,” Peterson told Al Jazeera. “The fact that the government is watching what is happening and being excited about it, not because it will help the rich, but because it will help the people in the lower stage, we are happy about that.”
A matter of timing
But not everyone celebrates. Ahead of a meeting between the International Monetary Fund (IMF) and Bukele on Thursday, the organization’s spokesman said the adoption of Bitcoin “raises a number of macroeconomic, financial and legal issues that require very careful analysis.” El Salvador is seeking a $ 1 billion bailout from the IMF.
Others questioned Bukele’s time: the announcement came the same week that U.S. Vice President Kamala Harris was visiting other countries in the region, but not El Salvador. Historically a regional ally, the United States has also been criticized for supporting the country’s right-wing regimes, even during a bloody civil war from 1979 to 1992 that pitted socialist rebels against the entrenched elite. of the village known as the 14 families.
More recently, US-Salvador relations have cooled since the United States criticized Bukele’s move in dismissing the judges of the Supreme Court and the country’s attorney general as seizing power. And a U.S. State Department report in May included five Salvadoran officials with close ties to Bukele on his list of allegedly corrupt politicians in Central America.
Bukele also approached China. Following the release of the corruption list, Bukele took to Twitter to praise a $ 500 million public investment from China, saying it was “done unconditionally.” Earlier, he tweeted his thanks to “President Xi Jinping and the people of the People’s Republic of China” after receiving millions of doses of COVID-19 vaccines from the country.
Thanks to President Xi Jinping and the people of the People’s Republic of China https://t.co/jaKoyNNxhH
– Nayib Bukele 🇸🇻 (@nayibbukele) April 7, 2021
Yet because El Salvador uses the dollar as its currency, its monetary policy is tied to that of the United States even when relations fail. That could explain the motivation behind the Bitcoin movement, said Johnathan Ordonez, international consultant with Guatemala-based think-tank LAB-CA, the Central American Laboratory for Innovation and Public Policy.
“Many White House officials have expressed concern about the authoritarian ways in which President Bukele has ruled the country,” Ordonez told Al Jazeera. “I will say – and this is my main thesis on the adoption of Bitcoin in El Salvador – that President Bukele wants to avoid sanctions or repercussions from the United States through El Salvador’s financial system.”
“I think Bitcoin will be a risky alternative to alleviate any pressure that Bukele could take from Washington,” he added.
Volatility versus access
Political motivations are not the only question. While Ortiz called Bukele’s decision “a big step for the country” and says the use of Bitcoin as a means of payment has been “excellent and practical” in El Zonte, he also acknowledges the pitfalls.
“For those who want to invest, it has a big risk because of currency fluctuation,” Ortiz said.
It’s those fluctuations that skeptics say will make Bitcoin impractical for everyday use – especially in a poor country like El Salvador.
Almost a third of the country lives on $ 5.50 per day or less, according to the World Bank, and 8.5 percent live in extreme poverty, or less than $ 3.20 per day. Wild fluctuations in the value of Bitcoin could make a real difference on that scale.
And the swings have been booming and busting this year. After hitting a record high of $ 64,899 on April 13 – pumped by an investment from Tesla and hype from its CEO, Elon Musk – The price of Bitcoin fell to $ 30,000 on May 19 after Musk criticized the use of the energy of the cryptocurrency.
Bitcoin is now close to $ 37,000, but headwinds are building. The reaction against its carbon footprint has been severe, and talk of tighter government regulation continues to gain momentum. Meanwhile, China and other countries are resuming cryptocurrency, while the credibility of Bitcoin as a currency out of government control has been called into question after U.S. law enforcement has regained some of its share. a Bitcoin ransom paid by a pipeline company.
But Bitcoin advocates still see an advantage for developing nations forced to live in a global financial system dominated by big banks. Peterson believes that the decentralized nature of Bitcoin, which cuts across banks by allowing peer-to-peer transactions, has the potential to empower Salvadorans who are not bankers and reduce the rights associated with receiving money from outside.
Remittances make up 23% of El Salvador’s gross domestic product, and about 360,000 families rely on them, according to the country’s central bank. But traditional transfer companies charge fees – to send $ 200 from the U.S. to El Salvador, for example, costs range from $ 2.99 to $ 12.99, according to the World Bank. database of discount prices.
“You have some of the poorest people in the world who pay some of the highest taxes to access the financial system, and so Bitcoin solves everything,” Peterson said. “They can receive remittances and transfers from family members virtually free.”
Peterson said he started Bitcoin Beach after receiving a “considerable” donation from an anonymous Bitcoin holder who told him that “if we could understand how to use Bitcoin in real ways, he would be willing to invest in some of the projects that let’s do it with the youth there. “
Peterson and his wife own a food service company in San Diego, California and run a non-profit Christian business in El Salvador. They used this first donation to pay for community volunteers in El Zonte.
“We started using Bitcoin to pay for young people in the community who were involved in various projects like river cleaning and beach cleaning,” Peterson said. “We now have 62 certified banks that are paid in Bitcoin.”
Since then, Bitcoin Beach has helped educate the community on how to use it in everyday life, creating its own lightning wallet that people use on their cell phones. The Bitcoin Beach wallet now has about 7,000 users, Peterson said, making about 1,200 transactions a day.
The app has a map that shows the places that accept Bitcoin in the city and allows people to send money directly to each other via their usernames. Users can also create invoices that are scanned and paid for with a QR code.
People in El Zonte also use the Strike app, which allows you to send remittances from the U.S. and receive them in Bitcoin or U.S. dollars, Peterson said.
But while Bitcoin is more volatile, Peterson said he has heard from many Salvadorans who prefer to keep their money in it above fiat currency because “it’s the first time they can actually invest in an asset.”
“Once people start using Bitcoin, they become saviors naturally without even thinking about it,” Peterson said. “People realize it’s going to be likely to pick up over time, and so they’re reluctant to part with it.”
While the rest of El Salvador undertakes the Bitcoin experiment, other questions remain, including how a country where drug trafficking and corruption are major problems will ensure transparency in the remarkably troubled world of cryptocurrencies.
And then there’s the central question: can a small country that hasn’t controlled the value of its own currency since dollarization 20 years ago find freedom in Bitcoin? Peterson thinks so.
“This is a small Central American country,” he said, “and people who are upgrading the world’s financial system, so keep an eye on them.”