This week, El Salvador became the first country in the world to make Bitcoin legal tender, sparking a wave of speculation over how the smallest country in Central America, which is among the poorest in the region, will use crypto -volatile currency.
Yet for a small Salvadoran seaside town, crypto is already a part of everyday life. El Zonte companies have been using it since 2019 after the launch of “Bitcoin Beach”, a program whose mission is to build a “sustainable Bitcoin economic ecosystem on the coast of El Salvador”.
“There are more than 50 establishments – from mobile phone stalls to vegetable and fruit vendors, stores, hardware stores, restaurants and hotels – that use Bitcoin for daily transactions,” said Carlos Enrique Ortiz Novoa, who started accept Bitcoin at Olas. Permanents, its hotel, restaurant and surf camp, in March 2020.
Now the rest of the country is embarking on El Zonte’s Bitcoin experiment after the country’s legislature passed a law spurred on by Salvadoran President Nayib Bukele, 39, forcing companies to accept it as means of payment for goods and services alongside the US dollar. , which has been the country’s official currency since 2001.
Bukele, who was elected in 2019 to the center-right Grand Alliance for National Unity party, has since festooned his crypto-branding Twitter account. His Twitter profile now features a photo of him with Bitcoin “laser eyes” and an ongoing discussion thread about a project to mine Bitcoin using energy from one of El Salvador’s volcanoes.
I just instructed the president to @LaGeoSV (our national geothermal electricity company), to set up a supply plan for facilities for #Bitcoins mining with very cheap energy, 100% clean, 100% renewable, 0 energy emissions from our volcanoes 🌋
It will evolve quickly! 🇸🇻 pic.twitter.com/1316DV4YwT
-Nayib Bukele (@nayibbukele) June 9, 2021
The first users of El Zonte share his enthusiasm. Mike Peterson, director of Bitcoin Beach, said the city’s pilot project always aimed to demonstrate “the power of Bitcoin to uplift the poor and those who have been excluded from the mainstream financial system.”
“We have seen the impact this can have on people’s lives,” Peterson told Al Jazeera. “The fact that the government has watched this happen and is excited about it, not because it will help the rich, but because it will help the people at the bottom of the ladder, we are delighted.”
A matter of timing
But not everyone celebrates. Ahead of a meeting between the International Monetary Fund (IMF) and Bukele on Thursday, the organization’s spokesperson said the adoption of Bitcoin “raises a number of macroeconomic, financial and legal issues that require very careful analysis.” . El Salvador is seeking a lifeline of nearly $ 1 billion from the IMF.
Others questioned Bukele’s timing: the announcement came the same week that US Vice President Kamala Harris was visiting other countries in the region, but not El Salvador. Historically a regional ally, the United States has also been criticized for supporting the country’s right-wing regimes, most notably during a bloody civil war from 1979 to 1992 that pitted socialist rebels against the country’s entrenched elite known as the names of the 14 families.
More recently, US-Salvadoran relations have cooled since the United States criticized Bukele’s decision to remove Supreme Court justices and the country’s attorney general as a takeover. And a US State Department report in May included five Salvadoran officials with close ties to Bukele on its list of allegedly corrupt Central American politicians.
Bukele has also drawn closer to China. After the bribery list was published, Bukele took to Twitter to praise a $ 500 million public investment from China which he said was “made without conditions.” Previously, he tweeted his thanks to “President Xi Jinping and the people of the People’s Republic of China” after receiving millions of doses of the country’s COVID-19 vaccine.
Thank you President Xi Jinping and the people of the People’s Republic of China 🇸🇻🇨🇳 https://t.co/jaKoyNNxhH
-Nayib Bukele (@nayibbukele) April 7, 2021
Yet because El Salvador uses the dollar as its currency, its monetary policy is tied to that of the United States even as relations falter. This could explain the motivation behind the Bitcoin movement, said Johnathan Ordonez, international consultant to the Guatemala-based think tank LAB-CA, the Central American Laboratory for Innovation and Public Policy.
“Many White House officials have expressed concern over the authoritarian ways in which President Bukele has ruled the country,” Ordonez told Al Jazeera. “I would say – and this is my main thesis of adopting Bitcoin in El Salvador – that President Bukele wants to avoid any sanctions or repercussions from the United States through the Salvadoran financial system.”
“I think Bitcoin will be a risky alternative to alleviate the possible pressure Bukele could be under from Washington,” he added.
Volatility versus access
Political motivations are not the only question. While Ortiz called Bukele’s move a “big step for the country” and says that using Bitcoin as a payment method has been “great and convenient” in El Zonte, he also recognizes the pitfalls.
“For those who want to invest, the risk is great because of the fluctuation of the currency,” Ortiz said.
It is these fluctuations that skeptics say will make Bitcoin impractical for everyday use, especially in a country as poor as El Salvador.
Almost a third of the country lives on $ 5.50 a day or less, according to the World Bank, and 8.5 percent live in extreme poverty, or on less than $ 3.20 a day. The wild fluctuations in the value of Bitcoin could make a real difference on this scale.
And the swings have been in full swing this year. After hitting an all-time high of $ 64,899 on April 13 – inflated by an investment from Tesla and the hype from its CEO, Elon Musk – the price of Bitcoin fell to $ 30,000 on May 19 after Musk criticized the energy consumption of cryptocurrency.
Bitcoin is now hovering around $ 37,000, but headwinds are strengthening. The backlash to its carbon footprint has been severe, and discussions about tighter government regulations continue to gain momentum. Meanwhile, China and other countries are cracking down on cryptocurrency, while Bitcoin’s credibility as a currency beyond government control has been questioned after U.S. law enforcement recovered a part of a Bitcoin ransom paid by a pipeline company.
But Bitcoin supporters still see an advantage for developing countries forced to live in a global financial system dominated by big banks. Peterson believes the decentralized nature of Bitcoin, which eliminates banks by allowing peer-to-peer transactions, has the potential to empower unbanked Salvadorans and reduce the fees associated with receiving money from the bank. foreign.
Remittances represent 23% of El Salvador’s gross domestic product, and about 360,000 households depend on it, according to the country’s central bank. But traditional transfer companies charge a fee – to send $ 200 from the United States to El Salvador, for example, the fees range from $ 2.99 to $ 12.99, according to the Remittances Price Database. the World Bank.
“Some of the poorest people in the world pay some of the highest fees to access the financial system, so Bitcoin totally solves that,” Peterson said. “They can receive remittances and transfers from family members virtually free of charge. “
Peterson said he started Bitcoin Beach after receiving a “large” donation from an anonymous Bitcoin holder who told him that “if we could figure out how to actually use Bitcoin he would be willing to invest in some of the projects that we were carrying out. with the young people there.
Peterson and his wife own a restaurant business in San Diego, California, and run a Christian nonprofit organization in El Salvador. They used this first donation to pay community volunteers in El Zonte.
“We started using Bitcoin to pay the young people in the community who were involved in different projects like cleaning the river and cleaning the beaches,” said Peterson. “We now have 62 certified rescuers who are paid in Bitcoin. “
From there, Bitcoin Beach helped educate the community on how to use it in everyday life, creating their own flash wallet that people use on their mobile phones. The Bitcoin Beach wallet now has around 7,000 users, said Peterson, who complete around 1,200 transactions per day.
The app has a map showing locations that accept Bitcoin in town and allows people to send money to each other directly through their usernames. Users can also create scanned and paid invoices with a QR code.
Residents of El Zonte also use the Strike app, which allows you to send funds from within the United States and receive them in Bitcoin or U.S. dollars, Peterson said.
But while Bitcoin is more volatile, Peterson said he has heard many Salvadorans say they prefer to keep their money there rather than fiat currency because “this is the first time they can actually invest in an asset.”
“Once people start using Bitcoin, they just naturally become savers without even thinking about it,” Peterson said. “People realize that this is likely to increase over time, so they are reluctant to part with it.”
As the rest of El Salvador embarks on the Bitcoin experiment, other questions remain, including how a country where drug trafficking and corruption are major issues will ensure transparency in the notoriously murky world of crypto.
And then there is the central question: Can a small country that has not controlled the value of its own currency since dollarization 20 years ago find freedom in Bitcoin? Peterson thinks so.
“It’s a small country in Central America,” he said, “and the people over there are turning the global financial system upside down, so keep an eye out for them.”