El Salvador on Tuesday became the first country in the world to accept bitcoin as legal tender, despite international concerns of risks to consumers.
Twenty years after it adopted the US dollar as its national currency, El Salvador becomes a crypto laboratory. In a plan spearheaded by the Central American nation’s president Nayib Bukele, citizens will be able to shop, pay taxes and buy land using the volatile cryptocurrency.
Bukele’s government claims the move will give many Salvadorans access to bank services for the first time and save some $400 million in fees on remittances sent home from abroad every year.
Remittances account for more than a fifth of GDP in the dollarised economy, mainly sent in dollars via agencies such as Western Union by an estimated 1.5 million expats.
According to World Bank data, El Salvador received more than $5.9 billion in 2020 from nationals living abroad, mainly in the United States.
And the country is relying on this money to boost a struggling economy that contracted 7.9 percent in 2020 due in large part to the coronavirus pandemic.
“Tomorrow, for the first time in history, all the eyes of the world will be on El Salvador. #Bitcoin did this,” Bukele said on Twitter Monday.
El Salvador has just bought it’s first 200 coins.
— Nayib Bukele 🇸🇻 (@nayibbukele) September 6, 2021
Government buys first 400 bitcoins
He set the ball rolling on Monday evening by announcing El Salvador had bought its first 400 bitcoins, in two tranches of 200, and promised more were coming.
The 400 bitcoins were trading at around $21 million, according to the cryptocurrency exchange app Gemini.
Critics say the rushed plan could cost poorer Salvadorans when the price falls, raise costs for banks and insurers, provide a shield for money launderers and risk economic stability.
The move is seen as an incredibly risky one for the already struggling economy in El Salvador. Bitcoin is an incredibly volatile currency, prone to sudden, unforeseeable drops in value.
Although Bitcoin has also been known to hit tremendously high peaks in value, its instability is why no other country has ever taken the leap with using it as a national currency before.
The government is installing more than 200 bitcoin teller machines, some guarded by soldiers to prevent possible arson by opponents.
And Bukele has promised $30 for each citizen who adopts the currency.
The instability of bitcoin provokes protests in El Salvador
But if the unpredictable digital currency plummets, all of El Salvador’s $26 billion economy could be in jeopardy. The nation’s central bank, Banco Central de El Salvador, is currently in over $19 billion dollars of debt.
“Adopting bitcoin as legal tender puts us on a roller coaster,” says Carlos Acevedo, who was governor of El Salvador’s central bank from 2009 to 2013.
Hundreds of Salvadorans across the country share this fear, and have recently taken to the streets to protest the Bukele’s move to take on the currency.