El Salvador: One year after the Bitcoin experiment  

What is the situation today?

It’s been a year since El Salvador adopted Bitcoin as the country’s official currency, becoming the first country to do so, with plans to create the first cryptocurrency city powered by the energy of a volcano. President, Nayib Bukele promised that “Bitcoin City” would be a tax haven for cryptocurrency investors and that miners would have an airport, an industrial area and a central square shaped like the Bitcoin symbol if anyone he was watching her from heaven.

But what is the reality today?

The foothills of the Conchagua volcano remain covered with dense jungle vegetation, while there are no machines or workers to indicate that there is any progress in the creation of the city. Reactions to the experiment have now multiplied.

This experiment was very dangerous, too dangerous for a poor country. We have seen that Bitcoin is an extremely volatile financial asset. – Oscar Picardo, director of Francisco Gavidia University

Unfortunately, the fall in the value of Bitcoin and other cryptocurrencies has alienated investors. When El Salvador – one of the poorest countries in Latin America – adopted Bitcoin as its official currency, its value was $47,000. A year later, it hovers at $19,000.

The government defends its choice, stressing that this is a long-term plan. He says Bitcoin’s policy has attracted investors, eliminated bank fees, increased tourism and promoted economic freedom for citizens.

On the other hand, Bitcoin’s fall has increased the country’s financial obligations, complicating the pursuit of $1.6 billion in bonds due in 2023 and 2025. International financial institutions are pressuring the country to reverse course, creating a debt problem.

Domestically, citizen adoption of Bitcoin is probably not going as expected. The government declined to provide statistics on the use of Bitcoin through the state-owned digital wallet Chivo. But an independent survey shows that only 20% of citizens have downloaded the app and continued to use it after the $30 government incentive. The research also shows that the vast majority of downloads took place in 2021 and almost no downloads took place this year.

Despite the fact that all businesses are required to accept Bitcoin payments, a survey of 1,800 households reveals that only 20% of businesses accept it. And those who accept it, have used it little.

We accept Bitcoin but have only made two sales with it. One for $3 and the other for $5. Since then, I haven’t done any. – Jesus Caceres, 47-year-old watchmaker

An important incentive for citizens, in theory, would also be capital transfers from residents abroad to their relatives in El Salvador. These transfers correspond to 26% of the country’s GDP, one of the largest in the world. Transfers through Chivo have no fees, allowing citizens to receive the full amount transferred by friends and family. However, central bank data between September 2021 and June 2022 shows that of the $6.4 billion the country received, less than 2% was transferred using digital cryptocurrency wallets.