The Central American state of El Salvador was the first country to adopt bitcoin as its official currency in September 2021. This reform aimed, in particular, to improve access to the banking and financial system and to facilitate the transfer of funds from strangers. Based on this experience, a university study shows that in practice, bitcoin is hardly used by the population of El Salvador today.
Why El Salvador became the first country to adopt bitcoin as its official currency
Under a law of September 7, 2021, known as the Bitcoin Act, El Salvador became the first country in the world to adopt cryptocurrencies as its official currency. From this date, Bitcoins are indeed legal tender in El Salvador, which means that all payments can be made directly in bitcoins, and therefore all sellers are obliged to accept payment by this cryptocurrency. For example, a resident of El Salvador may pay taxes in bitcoins.
El Salvador is a Central American country with a population of 6.3 million. It ranks 124thand human development index rating (HDI), just behind Morocco, Guyana and Iraq.
The expected benefits of such a reform, which was promoted, in particular, by the President of El Salvador, Naib Becule, were numerous:
- First of all, it should have allowed reduce dependence on the US dollarthe official currency of the country since the abandonment of the El Salvador column in 2001, and hence the monetary policy pursued by the Federal Reserve (EDF).
- Then this monetary reform was to take place to improve the conditions of access to the banking and financial system of the population of El Salvadorstill not banking.
- Finally, the adoption of bitcoin as the official currency should facilitate the transfer of funds, especially from El Salvadors living abroad.
The first lessons of the bitcoin experience in El Salvador
A recent study by three American university researchers, F. Alvarez, D. Argenté, and D. Van Pattan, first assessment acceptance of bitcoin in El Salvador. This study is based on a extensive survey directly with households and entrepreneurs in El Salvador. The observation is clear: despite its adoption as the official currency and the incentives introduced by the Government of El Salvador, Bitcoins are rarely used as a means of payment.
To encourage the people of El Salvador to use bitcoin as a means of payment, the government has developed an application – Chino wallet – allows you to exchange bitcoins and dollars for free and offer $ 30 in bitcoins – equivalent to 0.7% of GDP per capita – to any new user.
First, it appears that two-thirds of respondents said they were familiar with the statement Chino wallet. Despite government incentives, 21%, however, chose not to download it. They said they prefer to pay in cash and / or do not have enough confidence in the program or in bitcoins in general. Thus, almost half of the population of El Salvador, according to this estimate, could not or did not want to download the application for exchanging bitcoins for dollars. (and vice versa). In addition, only 40% of El Salvadors who downloaded the program continue to use it, spending $ 30 on bitcoins offered by the government. However, this use is far from intensive. : Thus, the average user of the program made or did not receive any payments in bitcoins during a certain month.
In addition, despite the law of September 2021. only 20% of companies surveyed said they accept payments in bitcoins and only 11% said they had ever received payment in bitcoins. Overall, the authors of this study estimate that about 5% of sales in El Salvador are through bitcoins. Another sign of distrust in the cryptocurrency: 88% of companies that received bitcoins said they immediately converted them into dollars.
Finally, contrary to expectations of monetary reform in September 2021. Today, bitcoin is hardly used by Salvadorans for money transfers. According to the Central Bank of El Salvador, only 1.6% of El Salvador remittances from abroad were actually made in bitcoins during February 2022.
Personal remittances from abroad are the main source of income for most Salvadorans. At the aggregate level, the World Bank estimates that these transfers accounted for almost 24% of GDP in 2020.
Therefore, the adoption of bitcoin as the official currency in El Salvador is currently far from the expected consequences.