- The focus is not on shop purchases but on remittances from abroad.
- The change in law doesn't come into effect until September 2021.
- Use of Bitcoin is already legal in El Salvador.
- El Salvador uses the US dollar and does not have its own fiat currency.
According to Reuters
The Central American country last week became the first country to adopt bitcoin as legal tender, with President Nayib Bukele touting the cryptocurrency’s potential as a remittance currency for Salvadorans overseas.
Monthly bitcoin transfers of under $1,000 - a proxy for money sent to the country from Salvadorans working abroad - totalled $1.7 million in May compared to $424,000 year earlier, U.S. crypto researcher Chainalysis found.
Such transfers hit a peak of $2.5 million in March, though a comparison with the previous year was unavailable.
El Salvador is heavily reliant on remittances. In 2019, transfers using traditional money totalled nearly $6 billion - around a fifth of GDP - one of the highest ratios in the world, according to the World Bank.
Other commentators have pointed out problems:
While any cryptocurrency can well facilitate more efficient transfers (without the charges banks impose), the significance of remittances to the Salvadoran economy points to another issue. El Salvador is a poor country, with one of the lowest rates of internet use in the Americas – 33% in 2017, according to World Bank data.
How many vendors, street hawkers or farmers are equipped to handle cryptocurrency transactions? US dollars will more than likely remain the default currency.
So small shops and businesses in El Salvador without the necessary technology are exempt from the new law.
The majority of transactions in El Salvador will continue to be paid in US dollars.
According to www.presidencia.gob.sv (machine translation into English)
President Nayib Bukele shared more details about how bitcoin will be used in El Salvador, as a legal currency as of September 7, showing certainty and confidence that Salvadorans can use this alternative in their daily economy.
"The government is going to see to it that this works," said President Bukele. For this, the authorities have created the electronic wallet "Chivo" , with which conversions from bitcoin to dollars can be made immediately. There will be a version of the application for individuals and another for companies.
The plan that has been designed by the Executive Branch has multiple guarantees, without affecting the potential to boost the economy. "Are there benefits? A lots of. Are there affectations? None, "said the president.
With the “Chivo” application, the conversion between dollars and bitcoin will be done at the moment: you only need to have a cell phone with internet access. The buyer decides if he uses the cryptocurrency to pay, or if he prefers to do it in dollars. The provider accepts the payment, and with the same electronic wallet, decides if that payment ends up receiving it in dollars or in digital currency.
"The use of bitcoin will be optional: no one will receive bitcoin if they do not want it," insisted the president.