A “new” currency has gained legal tender for the first time in the world this Tuesday. And it is not a new type of banknote.
Since this September 7, El Salvador became the first country to adopt bitcoin as a legal tender, in a move it has made that the nation and many other countries debate the opportunities and dangers of cryptocurrencies.
As of this Tuesday, Salvadoran companies and businesses are obliged, to the extent possible, to accept the controversial digital currencies as a form of payment.
The acceptance of the new currency comes three months after the Legislative Assembly approved in express format the so-called Bitcoin Law, which came forward thanks to the vote in favor of 62 of the 84 deputies that make up the Parliament, with a pro-government majority.
To encourage its use in a country where the majority of the population does not have access to i nternet, the government is inviting Salvadorans to download a new digital wallet application that gives away US $ 30 in bitcoins to all citizens.
The president of El Salvador, Nayib Bukele, announced on Twitter that his country bought the 200 first bitcoins and that they were working to buy more “as the deadline approached.”
The government has presented the measure as a way to boost economic development and employment and benefit those who send remittances.
However, surveys suggest that Salvadorans are not prepared for this and international organizations such as the World Bank and the International Monetary Fund have warned against its adoption.
Critical voices believe that the change is more of a “movement in search of attention” and of “distraction” from a “régi authoritarian menu. ”
Over the weekend, the Constitutional Court of El Salvador made a questioned interpretation of the Magna Carta to approve the presidential re-election consecutive, something that most academics agree is not legal.
And next week, the parliament plans to discuss a constitutional reform also promoted by Bukele and that will give greater power to the Executive.
- The Supreme Court of El Salvador approves the presidential reelection and opens the doors for Bukele to a second term
- What does it mean for El Salvador that Bukele reaches “absolute power” with control of the Legislative Assembly
While these things are happening in the real world, Salvadorans will be grappling with a new currency in the virtual world .
At BBC Mundo we offer you some keys to understand the change that occurs as of this Tuesday in the Central American country.
What is bitcoin?
There are thousands of cryptocurrencies in the world: that is, digital currencies without physical form that exist and are exchanged only online.
They are created when a computer “extracts” money by solving a set of complex mathematical programs.
Bitcoin is the most popular -and expensive- of all them.
In this video we tell you four keys to understanding bitcoin.
What does the new law of El Salvador consist of?
In June, the Salvadoran Parliament approved the legalization of cryptocurrency as legal tender.
Specifically, it establishes that the use of virtual currency will be “unrestricted, with liberatory and unlimited power in any transaction and at any r title that public or private natural or legal persons want to carry out. ”
The exchange between bitcoin and the dollar will be established“ freely by the market ”and will not be subject to taxes on the profits of capital, like any other legal tender.
As of this Tuesday, every economic agent must accept bitcoin as a form of payment “when it is thus offered by whoever acquires a good or service.”
The government has committed to creating the institutional structure necessary for the circulation of cryptocurrency and has begun the installation of some 200 ATMs do Where you can convert bitcoin to dollar, although experts point out that this alone will not be enough for the change that is taking place.
Why is it a milestone?
No country in the world had dared to declare cryptocurrencies as legal tender before.
In Japan, one of the most advanced countries in the world in the use of digital currencies, a legal reform in 2017 converted to bitcoin in the form of payment, which some interpreted as having been granted legal tender status.
However, a report published in 2018 by the Central Bank of Japan clarified that cryptocurrencies “are not legal tender and their use for payments depends on the willingness of the counterpart to accept them.”
Hence, it has drawn international attention that El Salvador, a small country with a modest economy, was the first to take this step, which was announced and approved in record time with little debate .
The measure occurs at the same time as many Governments around the world, such as China, are going in the opposite direction and trying to restrict the adoption of cryptocurrencies with higher regulations.
What are the risks?
The main criticism of the project is, without a doubt, the great volatility that characterizes bitcoin.
The cryptocurrency went from costing around US $ 10. 10 in September e of 2021 to a maximum of US $ 63. 000 in April 2021 and then fell to US $ 30. 000 in July of this year. Currently around US $ 62. 000 .
It is feared that this large fluctuation may promote speculative attacks that lead to chaos in the Salvadoran monetary system and with this, that the value of savings, pensions or wages is affected.
To avoid that the population sees its purchasing power compromised, the government announced the creation of a trust of US $ 150 millions in the country’s Development Bank to automatically exchange the bitcoins of Salvadorans who so wish.
Thus, Bukele gave as an example that if a fruit seller does not want to assume the risk of fluctuation and decides to change the bitcoins he receives with his work into dollars, this government-owned bank will buy at the price at which she valued her fruit, regardless of whether the value changed from when she made her sale until she deposited the cryptocurrency in the bank.
However, some economists believe that this does not mean that the government will assume the exchange rate risk, since it is financed with taxes, which implies, They say that it will be the entire population, particularly the poorest, who runs the risk.
The International Monetary Fund (IMF) warned that the dangers of adopting cryptocurrency as legal tender go further of its volatility and that may involve “ significant risks ”
The rating agency Fitch, for its part, pointed out that the adoption of bitcoin may increase regulatory risks for the institution is financial, including the possibility of violating laws against money laundering and “terrorist financing.”
El Salvador’s plan has also highlighted the environmental impact of cryptocurrencies (their production uses more energy than many countries), about which the World Bank warned.
- How much bitcoin pollutes, the currency that consumes more electricity than Finland, Switzerland or Argentina
Bukele announced in June that it had instructed state geothermal electricity company LaGeo to develop a plan to offer bitcoin mining facilities using renewable energy from volcanoes. of the country, although it is still unknown if it will be feasible.
What benefits can it bring?
Among the main advantages pointed out by the defenders of this initiative, it is highlighted that , thanks to transactions in bitcoins, the population could save the commissions of intermediaries in the remittances they receive from abroad and that can amount up to 30% of money sent, according to Bukele said.
The president has opined that the change will also lead to job creation and increased investment.
Remittances are a vital sustenance of the Salvadoran economy, assuming close to 26% of its Gross Domestic Product ( GDP).
Despite the pandemic, last year the country received almost US $ 6. 000 million of its emigrants, of which about 2.5 million live in the US
Given the fluctuating value of bitcoin and the commissions that must be paid to some s applications for purchase, some critics have pointed out that the money that the exchange houses and shipping agencies kept will now go to the hands of technology companies.
The president also highlighted that around the 70% of the population does not have a bank account and works in the informal economy, so cryptocurrencies could improve their financial inclusion .
Only the 45% of the Salvadoran population has internet access and more than 90% of rural households lack it, according to a study by 2020 IDB, IICA and Microsoft.
What do Salvadorans think?
A survey by the Central American University (UCA ) found that only 4.8% of the 1. 281 respondents understood what bitcoin is and how it is used.
More than 68% of respondents said they did not agree with the use of cryptocurrencies as legal tender.
Jeanette Sandoval, from 70 year old, who sells groceries to home delivery with his son, says he will not get involved.
“I’ve always been open to change, but this time I don’t agree. Our clients say they won’t pay in bitcoin, ”he told BBC journalist Joe Tidy.
“In my country there are many people who are illiterate and barely have a cell phone, not a smart one, but one of the old ones. They are not going to use it, ”he adds.
The Salvadoran taxi driver of 26 years, Daniel Hercules, for his part, says who is excited about the move, but concerned about the stability of his earnings.
“I have accepted bitcoin for about 2 months since I learned that this would come. Someone recently paid me US $ 40 in bitcoin for an airport fee, but it is rare. Only about 16% of customers prefer to pay with bitcoin ”, he says.
Daniel says that the cost of converting bitcoin to the local currency, the US dollar, is high, of one 10%, so you are using the money as a savings account.
He hopes to grow his wallet to around US $ 1. 000 in bitcoin, but he is afraid that the value of the currency will collapse.
“It is one of the things that worries me the most. Losing money from long hours of work would not be good ”.
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