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'It's like a casino': Crashes and crypto crime in first week of El Salvador's great Bitcoin experiment
On Tuesday, the Latin American nation abruptly became the first in the world to accept cryptocurrency as legal tender
Ravaged by endemic corruption, cocaine cartels and some of the world’s most violent street gangs, El Salvador is often viewed as a near-failed state.
But this week the troubled Central American nation gave its citizens a very different kind of problem to worry about — how to use Bitcoin.
On Tuesday, after just five hours of debate in congress, El Salvador abruptly became the first country in the world to accept cryptocurrency as legal tender, obliging all businesses from taxis to corner shops to accept it as payment.
The idea was the brainchild of President Nayib Bukele, Latin America’s first millennial head-of-state, who says it will allow millions of emigrants in the United States to send money to their families back home without having to pay commission.
In a society where the average citizen earns less than £3,000 per year and remittances account for a quarter of the economy, you might think that the surprise move would be wildly popular. Yet it has triggered national consternation and spontaneous street protests.
'It's like a casino'
“It’s not real money,” Víctor Flores, 60, says, summing up the views of many of his compatriots as he sits in the leafy terrace of his café, the Biscuit Factory, in central San Salvador, the capital.
“We’re not going to accept Bitcoins here. It’s too risky because of the volatility. It’s like a casino. Casinos are businesses; they exist because not everyone wins. If we do end up using it, we will have to see how to immediately exchange it for dollars.”
Many experts share those views. Economist Ricardo Castañeda, from the Central American Institute for Fiscal Studies, a think tank, describes the adoption of Bitcoin as “an experiment with no prior technical study” and a “leap in the dark with many risks.”
“Betting the well-being of the public in this virtual casino means that if everything goes well, the president wins, but if everything goes badly, it will be the citizens who lose,” he told The Telegraph.
Domino effect
Nevertheless, El Salvador is now spearheading an international trend. This week, Ukraine joined Germany, Panama and, surprisingly perhaps, Cuba, in establishing regulations around the use of cryptocurrencies.
The US is investigating a digital dollar, and the Bank of England has said it is exploring what its own digital currency should look like.
Yet the Central American nation is, so far, the only one to actually make them compulsory rather than simply seeking to protect users. As such, it will be the focus of attention for economists, cryptocurrency advocates and possibly even central bankers in the coming months as they seek to understand the benefits and pitfalls of the unprecedented shift.
Along with no commissions, Bukele claims the advantages of using Bitcoin could include bringing more El Salvadorans into the formal economy and attracting badly-needed foreign investment, despite the public disapproval of the World Bank, which refused to help the country implement its plan. Bitcoin transactions would also not be subject to capital gains tax.
Nevertheless, there are numerous downsides, especially the risk of Bitcoin — designed to allow users anonymity — being used to launder the proceeds of the drug trade and high-level political corruption in a country with weak financial oversight.
Special cash machines rolled out
The criticism has been fuelled further by the rushed rollout, including the inauguration of special cash machines across the country, guarded by the police, and an app known as the “Chivo Wallet.”
Chivo means billy goat in Spanish but is also El Salvadoran slang for “cool.” The digital wallet collapsed repeatedly this week, prompting Bukele at one point to tweet to his nearly three million followers that, if they received an error message, they should sign out and back in. He was promptly labeled 'IT guy-in-chief'.
In theory, businesses will be forced to accept Bitcoins. Yet El Salvador will continue to use the US dollar, which the country adopted in 2001 to address chronic economic instability, leading to confusion over just how compulsory the cryptocurrency will actually be.
Meanwhile, business owners complain they have been given minimal information about the practicalities of adopting this perplexing new currency. Flores says he received a single, brief government email on Wednesday inviting him to an online course early the following day.
The adoption of bitcoin is just the latest move by Bukele, a 40-year-old former entrepreneur, to burnish his credentials as a nonideological, tech-savvy modernizer. Nevertheless, his authoritarian streak reminds many of an all-too-familiar kind of Latin American leader, the caudillo or strongman.
Since taking power in 2019, he has sent armed soldiers into the congress, in an apparent attempt to intimidate lawmakers, and stacked the supreme court, which last week ruled that he could run for re-election in 2024, in violation of the constitution.
Yet some El Salvadorans are delighted with the move. One of them is Mario Escobar, 33, who has been using Bitcoin since 2016, and has already been transferring his savings to the Chivo Wallet.
“The transaction worked, although it took a while,” he said, adding that the savings from avoiding commissions and “the ease of being able to deposit money” online would benefit all users.