Friday, January 27, 2023

In world first, bitcoin becomes legal tender in El Salvador

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El Salvador on Tuesday became the first country to embrace bitcoin as legal tender with consumer demand crashing its brand-new cyber “wallet” system even as the currency’s value fluctuated against the US dollar.

Under the initiative of President Nayib Bukele, Salvadoran consumers can now legally use bitcoin along with the US dollar which has been the official currency for two decades to pay for any good or service.

Bitcoin can be bought and spent using a cyber wallet app called Chivo, while cash can be drawn, in dollars from some 200 bitcoin automated teller machines hastily erected countrywide.

Several who had gathered at a Chivo bitcoin ATM in central San Salvador to conduct transactions had to leave disappointed as the app was down. A few meters away, at a fruit and vegetable market, trade continued as usual with clients and vendors exchanging dollars.

Bukele claims the introduction of bitcoin will give many Salvadorans access to bank services for the first time.

The president has promised $30 for each citizen who adopts the cryptocurrency.

But the rollout has been met by much skepticism and fear over the effect of currency volatility on the small Central American country’s ailing economy, while many have warned of the lack of protection for users.

Hundreds of Salvadorans have taken to the streets in protest.

“We don’t want that bitcoin,” scoffed Rosa Martha Perez, a 68-year-old skeptic from El Salvador’s countryside who marched in the capital on Tuesday with a few dozen others.

“The government has said nobody will be compelled to use the digital currency, and the Chivo app will allow on-the-spot conversion of bitcoin to dollars in cases where merchants prefer to receive online payment in traditional money.

The dollar will remain the currency of reference for product prices, salaries and accounting records.

The government got the ball rolling, buying its first 400 bitcoins Monday, followed by another 150 on Tuesday, for a total value of $26mn.

On the market, the currency unexpectedly plunged against the dollar in European and US trading, falling below $43,000 before rebounding to around $47,000.

At its all-time high in April, one bitcoin was worth more than $63,000, a number slashed in half by June.

“It’s this volatility that has made many in El Salvador less than optimistic about the currency’s adoption,” said Susannah Streeter, a markets analyst with Hargreaves Lansdown.

“It is a huge gamble for the country’s payment system given that making transactions in the currency when the future price is so uncertain is risky.

Recent opinion polls suggested a majority of the nation’s 6.6 million people would reject the currency and continue to use the greenback.

Bukele’s government, which has enjoyed majority backing in parliament since March, has budgeted some $200 million for his bitcoin plan, guaranteeing the currency’s convertibility to dollars.

It hopes the move will boost remittances, which account for a fifth of El Salvador’s GDP over $5.9 billion in 2020.

The payments are vital to revive an economy that contracted 7.9% in 2020 due in large part to the coronavirus pandemic.

Thousands of Salvadorans were already using bitcoin before Tuesday.

“We are seeing for the first time people accumulating wealth, accumulating savings,” he said.

 “They can buy a new roof for their house, buy a cow, send their kids to school and these are opportunities they didn’t have before.

Source: AFP, San Salvador

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