On Tuesday, June 8, Salvadoran Congress passed a new law making El Salvador the first country in the world to classify bitcoin as a legal currency. The lawmakers, with 62 out of 84 votes, approved President Nayib Bukele's proposal to embrace cryptocurrency.
The Salvadoran government believes Bitcoin will mean fewer fees for family remittances, more foreign investment, and a path to becoming an innovative, technology hub. Cryptocurrency fans and business media around the world applauded the historic decision.
In El Salvador, however, many people are against it; this includes Leonor Selva, the executive director of El Salvador's largest organization representing the private sector, who has criticized the currency's volatility. She writes that the vendor may never be sure how much they earn from a transaction.
Bitcoin is a decentralized cryptocurrency, so it does not depend on any authority or central bank and is sent from user to user on the peer-to-peer bitcoin network.
One of the main critiques is that the law will force businesses to accept bitcoin as a form of payment.
So, what does this new Bitcoin Law mean to the average Salvadoran or the small business owner? To get a better sense of the idea of the on-the-ground reaction, I went to Sensuntepeque to get some answers.
Sensuntepeque, located near the Honduran border, is similar to most cities in the country. It has a small tourist industry and about 25,000 residents, many of whom receive remittances from relatives in the U.S.
I spoke to 20 local small businesses about the new law. The ones willing to answer my questions told me that they only accepted cash as a form of payment and had no plans to use bitcoin. These 20 businesses have a physical space, yet more than 75 percent are not registered as business entities, meaning they do business outside the formal economy.
All in all, in El Salvador, less than a third of businesses are registered, so only a few could benefit from the currency at the time being.
Ernesto Vásquez, a local business owner, is taking a wait-and-see approach regarding Bitcoin. Vásquez runs a construction and renovation business in the town. He explained that over 70 percent of his clients are Salvadorans living abroad who own property in the area. He said:
La mayoría de las personas para las que trabajo viven fuera de El Salvador; me envían el pago mediante remesas. Ahora, si alguna de ellas quiere pagarme en bitcoins en el futuro, quizás voy a tener que aceptarlo. Sin embargo, iré inmediatamente a un lugar y la convertiré en efectivo. No me quedaré a especular en el valor futuro de esta moneda.
Most of the people I work for live outside El Salvador; they send me payment via remittances. Now, if any of them wants to pay me in bitcoins in the future, I might have to accept it. However, I would immediately go and convert it to cash. I will not keep it and speculate the future value of this currency.
The banking sector is expected to suffer from the introduction of Bitcoin, as the new currency could disrupt the remittances industry. Annually, more than $6 billion – about a fifth of El Salvador's GDP — enters the country via family remittances. As most people who receive this money do not have bank accounts, they have to pay high fees to financial institutions to get the money in cash.
In Sensuntepeque, I met Oscar Barrera, a small business owner who owns a computer and cell phone repair shop. He is a Bitcoin supporter and plans on using it.
Especular sobre el valor futuro de Bitcoins es algo que la gente como yo, que entienden de Bitcoin, hará. Otras empresas o personas que reciben Bitcoins lo convertirán inmediatamente en efectivo; ellos necesitan ese dinero para hacer negocios al día siguiente o para sobrevivir.
Speculating on Bitcoin's future value is something people like me, who understand Bitcoin, will do. Other businesses or individuals who receive bitcoins will immediately convert it to cash; they need that money to do business the following day or to survive.
Private citizens were hesitant to share their views on Bitcoin with Global Voices. Since El Salvador has a big problem with extortion, most individuals are unwilling to talk about their finances. However, a great majority of the eleven people who accepted to talk with me said that they will not be using bitcoin, most of all because of a lack of knowledge about the currency.
President Nayib Bukele tweeted that the law was made as simple as possible and that the government would guarantee the exchange rate. According to the law, the Salvadoran government will “promote the necessary training and mechanisms so that the population can access bitcoin transactions.”
La #LeyBitcoin es ambiciosa, pero sencilla, además está bien estructurada para que tenga riesgo 0 para quienes no quieran asumir riesgos.
El Gobierno garantizará la convertibilidad al valor exacto en dólares al momento de cada transacción.
— Nayib Bukele ?? (@nayibbukele) June 9, 2021
The #BitcoinLaw is ambitious, but simple, plus it is well structured to have zero risk for those who do not want to take risks.
The Government will guarantee convertibility to the exact dollar value at the time of each transaction.
On top of price volatility, critics have pointed out Bitcoin's use in illegal transactions, insecure exchanges, and its large carbon footprint, due to the amount of electricity the digital currency needs to be created. To address this issue, Bukele said he plans to use clean geothermal energy, from volcanoes, to lessen the currency's carbon footprint.
Some Salvadoran economists pointed out that bitcoin could open the door to corruption and money laundering, given that bitcoin is a digital currency that leaves no trace of the transactions made. This sparks concern as the Salvadoran government has been signaled as increasingly authoritarian and opaque.
The Bitcoin cryptocurrency was already in use in El Salvador. The small surfing beach towns of El Zonte and El Tunco have been using it for over a year.
Si una señora vendedora de minuta en la playa El Tunco puede manejar el #BITCOIN y tu que eres de la capital estás preocupado y no sabes que es el BITCOIN !!! ???♂️?? pic.twitter.com/SX3sG4LAwc
— JℹⓂⓂy F⛎en✝es (@IsaiasOF_NI) June 9, 2021
A lady selling minuta on the beach of El Tunco can handle #BITCOIN but you who are from the capital are worried and do not know what is BITCOIN !!!!???♂️??
Michael Peterson, the creator of the Bitcoin Youth Program in El Salvador, argues that educating people on the advantages and drawbacks of accepting Bitcoin is the way forward. He wrote:
I think the key for Bitcoin adoption is just getting people in the door. Once they see how well it works, then they are willing to put the effort in.
Very interesting post. I’m surprised how Salvador became the first country that accepts Bitcoin.
Can I translate this article into Spanish? I want to build out my portfolio as a professional translator and expand the reach of this article via my translation.
I appreciate it in advance.
Hi Johann, the story has already been translated into Spanish by our translation section – https://es.globalvoices.org/2021/06/14/efectivo-o-bitcoin-hablan-los-pequenos-empresarios-de-el-salvador/.
If you’re interested in becoming a volunteer translator with Global Voices, please apply though the form on this page https://globalvoices.org/lingua/
Informative post! Can’t believe less than a third of businesses are registered there… going to be hard to enforce this. Curious how things will work out.
Want to point out that all Bitcoin transactions are permanently recorded on the public blockchain though, so there is a permanent trace of every transaction. Just harder to trace back to a physical identity if the wallet wasn’t setup with KYC.
“Salvador has a debt burden and a bad economy”.What should the govtt do ? Print more currency and move into hyper inflation,and civil war ?
Or adopt the US Dollar – which is like outsouring the treasury and monetary policy of Salvador,to the US Fed
The people with money need a currency to part their assets,from the point of safety and risk.If they pile into USD,the local currency will crash.If they exit Salvador,business and employment will collapse.
SOLUTION = ALT CURRENCY,which will keep the rich in Salvador,and give options to locals,to use USD or local exhange,or Alt-currency.
WHAT IS THE OPTION ?
CHINESE YUAN ?
OR BTC ?
EVEN THE PBOC CANNOT CONTROL FAKE YUAN/REMIMBI IN CHINA.
Only way is BTC.
Y not use the BTC to aid Salvadoreans,in inward and outward remittances ?
It can also be used to settle import and export payments ,especially since bulk of the imports,are from the USA,and BTC is freely used in USA.
Transfers of funds from 1 BTC to the other,is in less than 1 second,and this is a legit transfer.Even if the transfer is to a money changer in Salvador,he can sell the BTC,and pay the recipient in cash with a cash receipt.
In 1 second,the price will not vary much,and the money changer has to have standing nstructions,to sell all BTC inward remittances – in 3 second tranches. BTC or some other currency,can have an option to block the price for 3 seconds, and that quantity of BTC,will NOT BE traded for 3 seconds,and disclosed on the Crypto Exhange.Or in the alternative,some large BTC trader can offer a Put option for 3 seconds – which will be the cost for the remittance.
The savings in time and cost,will far exceed any disadvantage,and Salvadoreans will get more cash in hand,to spend and save.They could cash out in USD,or any other currency,at premium rates.
Salvadorean Money Changers and ADs,will become OBSOLETE soon. Salvadorean bankers,have to make profits from efficiencies, and NOT by gouging money from locals.
With BTC as the EXCHANGE,the nation should invite PRC and others,to tap into Peak load power plants like Hydel and Geothermal,and invite miners into Salvador,into SEZs with nil Taxes for 10 years,and guaranteed power supply. The Govtt will earn from power tarriffs,power wheeling,tax on power profits and lease charges,on the Miners
Salvador has 23 ACTIVE VOLCANOS AND SITS ON THE RING OF FIRE.THE POWER CANNOT BE USED IN SALVADOR,TO MAKE OR EXPORT ANYTHING.THE ONLY THING THAT CAN BE EXPORTED IS BTC,AND MADE BY FOREIGNERS IN SALVADOR !
IT IS A WIN-WIN !
This can be a new economic model for the nation.
ALSO SALVADOR HAS MANY PORTS WITH GOOD DRAFTS WHICH ARE VIABLE FOR RPP – ON RFO OR HSD – WHICH IS A SHIP WITH A POWER GENERATOR, WHICH WILL DROP ANCHOR AT THE PORT,AND GENERATE PEAK LOAD POWER !dindooohindoo
WITH LOW COST POWER SERVER FARMS CAN ALSO BE HOSTED IN SALVADOR!
If Salvadoreans have been stashing USD as a risk hedge – it is not good for the state – as this stash is in cash – and pressures the local exchange and has no productive use
With BTC and the circulation of USD,if the USD cash starts circulating,it is good for the nation and the banks,and some of the USD will find its way into the banks,and be used for economic activity.
People will take out their hidden USD,buy BTC and SPEND THE MONEY or SPEND THE APPRECIATION IN THE BTC OR THE PROFIT – and that is a gain for the nation.If the banks sell the BTC,then the PHYSICAL DOLLARS,WILL MOVE INTO THE BANK – AND THE NATION CAN USE THE USD,NOT TAKE IMF LOANS,AND THE PEOPLE WILL HAVE DIGITAL DOLLARS WHICH CANNOT BE STOLEN,BURNT,TORN,COUNTERFEITED OR DAMAGED.
Boosting demand for a DIGITAL DOLLAR (BTC),is better than the PHYSICAL USD.
Money laundering cannot happen with the BTC,as the person WHO SELLS THE BTC TO THE STATE,AND RECEIVES USD IN HIS BANK – will have a name and identity,and will need to explain the proceeds,as the date of his acquisition of the BTC,is known.
Even if such a fool exists,he would be trapped by the state,with the BTC.
THE ADVANTAGE TO THE PEOPLE, IS THAT ALL BTC TRADES FOR BUYING BEER OR FOOD ETC.IS OUT OF THE TAX NET, FOR THE SHOPKEEPER , AS THE STATE WILL NEVER KNOW THE SALES MADE IN BTC – UNLESS THE SHOPKEEPER DISCLOSES IT TO THE STATE.
SO THE SHOPKEEPER MAY OFFER LOWER PRICES AND ALSO IF BTC FALLS,HE MAY NOT HIKE HIS RATES AS HE BOUGHT THE GOODS WHEN BTC WAS HIGHER – AND HE EXPECTS IT TO GO STILL HIGHER ! dindooo hindoo
The Govtt of Salvador,should commit that every Salavadorean,can surrender his BTC to the bank,and get USD,at any time.dindooohindoo