Bitcoin will be used as legal tender in El Salvador alongside the US dollar starting on Tuesday. Bukele tweeted that the country’s brokers “will buy much more as the deadline approaches.”
Salvadorans will be able to download the “Chivo Wallet,” an application created by the government which will deliver $30 worth of bitcoin to people to promote its use.
Some citizens have embraced the technology, while others are wary. José Abraham Cerón, a baker, told CNN that it’s not difficult to deal in bitcoin. But Blanca Estela Ponce, the owner of a nearby tortilla shop, said she prefers cash.
“[Bitcoin is] something new and we don’t have enough information about it,” Ponce told CNN.
El Salvador has partnered with digital finance company Strike to create the infrastructure required.
Cryptocurrencies are held in digital wallets, rather than through a traditional bank account — meaning that people in poorer communities with less access to banks could use bitcoin as a way to gain increased access to their finances.
However, social organizations have asked the Salvadoran government to repeal the law, largely because they fear the extreme volatility of the cryptocurrency.
The International Monetary Fund, which provided an emergency loan to El Salvador last year and is now negotiating another round of lending, has taken a dim view of using bitcoin as legal tender, saying that doing so raises a number of economic, financial and legal issues.
“How do we know what we collect in taxes when bitcoin goes up and bitcoin goes down? How do we plan for expenditures? Remember in April, bitcoin crossed $65,000 and then it dropped almost half of it. That is a problem that the ministry of finance is going to be wrestling with. And it is not an easy one,” Kristalina Georgieva, managing director of the IMF, said recently.
In late July, Moody’s Investors Service pushed El Salvador’s debt rating deeper into junk territory, citing “a deterioration in the quality of policymaking” including the government’s decision to adopt bitcoin as legal tender.
Moody’s said the country remains susceptible to financing shocks that could jeopardize the government’s ability to repay creditors starting in January 2023.
El Salvador’s government is betting that using bitcoin as legal tender will attract new investments. Authorities also hope to reduce commissions paid for sending remittances from abroad.
— Joshua Berlinger, Rafael Romo, Charles Riley and Jill Disis contributed to this report.