A year after El Salvador made Bitcoin fiat money, things aren’t looking good

Last year, El Salvador made international headlines when its leader, Nayib Bukele, announced it would be the first country to accept Bitcoin as fiat currency.

His hope was to turn El Salvador into the premier destination for global crypto investments, strengthen the nation’s economy, and connect more of its bankless population to the financial system. But as Bitcoin’s price plummeted, those ambitions have been curtailed, if not entirely disappointed.

Sabrina Escobar, a journalist who traveled to the country to see how her Bitcoin experiment paid off, shared her findings in a recent cover story for Barron’s and joined the Texas Standard to analyze what he saw.

This transcript has been slightly edited for clarity:

Texas Standard: The passage of the Bitcoin law last year in El Salvador meant that sellers, banks, traders all had to legally accept bitcoins. You recently spent some time in the countryside talking to business owners. Do many of them accept Bitcoin payments these days?

Sabrina Escobar: The funny thing about the law is that it was done very hastily and so there was a lot of confusion. And one of the big confusions is whether or not traders should take Bitcoin. The original passage of the law said that all businesses had to accept Bitcoin because it is legal tender – this is essentially what is legal tender. But because there is so little understanding about it, they eventually added this kind of confusing warning saying it’s optional.

So now what really happened is that you see big institutions or big companies that have to take Bitcoin or somehow accept cryptocurrency in everyday business and consumer payments. But the smaller businesses – the people in the informal sector, which is a really important part of the Salvadoran economy, don’t have to. And so it really becomes more of an optional thing for a lot of people. And I would say that most of the people at this point have decided not to take Bitcoin.

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Before we go too far in the path of how things look right now, can you first explain the big idea here a bit? What was the vision behind this law?

It depends a little on who you ask. There is still a lot of confusion, once again, about what really motivated the law. President Bukele really had this vision of creating a Bitcoin paradise. On the one hand, it is advertising that Bitcoin will be a new way to cash in on the country’s non-bank population, which is around 70% of the 6 million inhabitants, and will also be a way for further financial inclusion and economic liberation. and be part of this broader new wave of a global currency. And it will also be, for him, a way to attract foreign investment to the country and to really bring cryptocurrency investors to El Salvador and invest in mining and all the things that come with it.

In your report, you point out that El Salvador is a country where around half of the inhabitants have access to the Internet; Bitcoin and blockchain are technologies that require the Internet. Do you have the feeling that most Salvadorans are actively using or are also familiar with cryptocurrencies?

I would say that very few people are familiar with, you know, really what Bitcoin is and what cryptocurrencies are in the country in general. There are some pockets in El Salvador that are very cryptocurrency or cryptocurrency savvy. You know, the famous one is called El Zonte Beach, which is now known as Bitcoin Beach, and that community uses Bitcoin, I’d say a good amount, but most people still use cash, because that’s what they know. It’s safe; they don’t have to learn to use any technology. And I’d say most of the country is still confused, skeptical, or just doesn’t know much about it.

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El Salvador has made a significant investment in this project, not only in purchasing the Bitcoins themselves, but also in the infrastructure needed to use them. Could you tell more about some of the investments the country has made in terms of cryptocurrencies?

The actual figures are a bit confusing because the government hasn’t officially released many numbers. So you have some estimates that say anywhere between $ 200 million and $ 300 million about digital infrastructure, and that has gone to things like creating a government-owned wallet called Chivo Wallet: “chivo” is Salvadoran slang for “cool. “. You have over 200 Bitcoin ATMs across the country and that’s all in all.

You know, I’m going to say something in a certain sense in context: it doesn’t seem like much. El Salvador’s annual budget is around $ 8 billion, so $ 250 million in the grand scheme of things is a very small percentage indeed. But there are other urgent needs, critics argue: it is a country with many needs, and perhaps it needs to be invested in what the country needs right now.

In your opinion, does the criticism President Bukele is facing right now have more to do with how this Bitcoin program was administered in the country? Or does it have more to do with the timing and the fact that Bitcoin’s price has plummeted lately?

The Bitcoin law from the beginning had a lot of opposition, so even when it announced it – which was last summer, and the law went into effect in September – by that point, Bitcoin was rising, and it was at a level. very high standard actually. Bitcoin peaked somewhere in the fall and has since lost its value. But even from the moment he announced it, there was a lot of opposition, not because the price was going down or what you think, because it really wasn’t; it was going very well. Some people have made a lot of money during that time period.

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So it was really about the gist of implementing a currency like cryptocurrency that was relatively untested – it’s only been around for 13 years – and the volatility that could come with it, or just the insecurity of it.

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