El Salvador is the only country to adopt bitcoin as a legal tender. Every citizen has been gifted $30 in bitcoin, while companies can swap it for dollars according to their will. So why was the decision taken, and what effects are the dynamic having?
The easy and no fuss movement of digital coins across borders sans losing value is a primary goal. Bitcoin would enable quick and cheap transactions too. It is a global currency, the way we shifted from gold coins to flat currency, optimists of the subject say we can change from fiat currency to virtual currency.
If wholly accepted, it would save the cumbersome currency exchange process and be helpful for the environment. Another advantage of digital money is that it is a viable option for avoiding local financial instability.
When the value of the Zimbabwean dollar increased due to hyperinflation in 2015-people turned to cryptocurrency. Crypto, in all fairness, encompasses what the ‘value’ of money is and uses the Internet for transparency and decentralisation so that everyone can have a seat on the table of finance.
The execution of the scheme
The government installed 200 ‘Bitcoin ATMs’ and offered $ 30 worth of Bitcoin to all El Salvadorians who register on the Chivo wallet.
Initially, there were bugs, like the Chivo wallet was unavailable on many app stores, and the government had to suspend the app to add servers to increase capacity.
The volatility of crypto was also laid bare when its price dropped sharply from $52000 to $ 44000 in a day.
The new El Salvadoran law mandates that businesses accept Bitcoin as payment for goods and services wherever applicable.
Merchants who are not technologically able to get virtual currency have been exempted. It is also noteworthy that 70% of the country’s citizens do not have bank accounts, so the digital currency is also likely to bring them out of their shells.
Financing Bitcoins by the government
The government has a budget of $ 203 million in public money to bolster its Bitcoin plan. The aim is to give more people access to banking services simultaneously, saving millions of commission fees for crucial remittances sent home from abroad.
Of this amount, $150 million guarantees the convertibility of Bitcoin into dollars and $ 23.3 million for financing the rollout.
Another $ 30 million was set aside for a $ 30 bonus for new users. The government got the ball rolling by buying its first 400 Bitcoins 7th of September, followed by another 150 on the 8th of September at a total value of Dollar 26 million.
Works of other countries in the direction
China has already announced its CBDC, i.e., Central Bank digital currencies, and the US and UK are going. The Indian government has floated the cryptocurrency and regulation of the official digital currency bill this year.
The government has prohibited all private cryptocurrencies and laying down the regulatory framework to launch an official digital currency.
It was introduced in the Parliament budget session as the share but was held up as the government continued discussions with stakeholders.
Though common cryptocurrencies like Bitcoin or Ether have fewer chances of being accepted because of their extreme flexibility.
Bitcoin works like any other commodity in trade; when it’s ‘bullish’ you buy and ‘bearish’ you sell or keep them in a ‘cold storage’ or offline network, but the number of people dealing changes so does the value.
Concerns and conclusion
The venture though an audacious one has the risk of price inflation in a country with high poverty and unemployment with the lack of protection for the users.
The criticism is also because of its chances of illegal usage. International institutions have flagged concerns with the IMF, saying it “raises several macroeconomic, financial and legal issues that require careful analysis”.
The World Bank had rejected a request from El Salvador for assistance with Bitcoin working.
The stakes are high, but it might be a significant success with a young and enthusiastic population of professionals. The way might be tricky, but if executed well, maybe a giant leap in finance.