Like millions of Salvadorans, driver Ricardo López has been trying to understand Bitcoin for the past few weeks. Once the digital currency becomes legal tender this week, he is not sure whether he will accept it, but if he accepts it, he will immediately convert it into U.S. dollars.
“They said prices will be different, a bit like the stock market,” said the 37-year-old. “Most people are scared because of the lack of information.”
After adopting the U.S. dollar as its national currency for 20 years, El Salvador will become the world’s first Bitcoin legal tender.
In a plan led by Nayib Bukele, the populist president of Central American countries, citizens will be able to use this unstable cryptocurrency to shop, pay taxes and buy land.
Proponents say it will cut the fees Salvadorans pay for domestic remittances-which accounts for a quarter of the country’s GDP-to promote financial inclusion for those without bank accounts and facilitate access to potentially high-yielding assets .
Critics say that when prices fall, hasty plans may cost poorer Salvadorans, increase costs for banks and insurance companies, protect money launderers and endanger economic stability.
The rating agency Moody’s downgraded the country’s debt rating, partly because of the law. The International Monetary Fund-which is currently negotiating with the government on a new loan-said that the use of cryptocurrency as legal tender could destabilize prices and put the financial system at risk.
In a week’s time, opinion polls show that most Salvadorans are opposed to this idea, and on the streets of the capital, few people say they are ready to switch to digital currencies.
From pensioners to labor unions, sporadic small protests took place throughout the week, and a digital expert who publicly opposed the plan was detained by the police without an arrest warrant.
Guadalupe Escobar, 35, said: “I don’t know anything about it, and I don’t want to learn. I’m one of those people who say: It’s impossible, I won’t use it.” A roundabout in the capital San Salvador.
Among the employees and owners of more than 20 different businesses surveyed by the San Salvador Financial Times—from informal street food stalls to chain coffee shops—three said they knew they would accept Bitcoin. The rest have not yet begun to prepare or reject the idea.
The Bukele government will launch a digital Bitcoin wallet called “Chivo” in the next few days-meaning “cool” in slang-each user will get $30 in Bitcoin for free. Across the country, Chivo ATMs will allow consumers to buy Bitcoin or convert it into cash, and the government will bear the cost of commissions.
This move has excited foreign cryptocurrency advocates. Juan Pablo Thieriot, CEO of Uphold, a digital platform that supports payments and transactions in cryptocurrencies, national currencies and precious metals, said that El Salvador’s move was “very meaningful”.
This is because this dollarized country needs better options to avoid the negative impact of the US government’s huge stimulus plan on the currency.
“You will see something like… six or eight trillion [dollar] In devaluation exercises, most of the benefits will flow to American citizens. .. And you are not a beneficiary of it,” he told the Financial Times. “You will logically look for other things. “
Leonor Selva, executive director of the private sector association ANEP, said that the country’s large retail companies are preparing to accept Bitcoin and expect sales in September to surge due to additional liquidity, but what else will happen is unclear. .
“Compared with public policy, the government is preparing more brand or product launches,” Selva said.
When answering questions, the government stated that it will release more information in the next few days.
This bold move was inspired by a project by El Zonte called Bitcoin Beach, a laid-back surfing town 50 kilometers from the capital where tourists and locals already use this cryptocurrency.
In 2019, an anonymous “early adopter” of American cryptocurrency began to fund community work in the town that pays in Bitcoin, and now a team mainly composed of young Salvadorans is dedicated to promoting the use of Bitcoin.
Idalia Mejia for sale pupa -A popular Salvadoran tortilla, usually filled with cheese or meat-in Bitcoin in town, and thought it was good for attracting customers, but tried not to stick to it. “When it went down, I had already lost,” the 49-year-old said. “I would rather not have it.”
In the past year, the price of Bitcoin has soared from approximately US$10,000 to over US$60,000, and its current value is slightly less than US$50,000.
One of the project leaders, Jorge Valenzuela (Jorge Valenzuela) estimates that about half of the town’s residents use it. He said that some people keep it, but for others, it is convenient to trade in a country where 70% of the financial services are not available.
Across the country, according to the law, anyone who can use technology must accept Bitcoin starting Tuesday, although the three-page government regulations do not mention penalties for non-compliance.
In addition to the initial incentives, the Chivo Wallet will allow immediate conversion to U.S. dollars and will be backed by a recently approved $150 million fund. Some economists questioned whether this is large enough and said that the fall in Bitcoin prices will put the government under broader fiscal pressures.
Torino Capital said in a report: “For example, if taxes are paid in the form of encrypted assets, and expenditures are still mainly in U.S. dollars, then the foreign exchange market and the level of international reserves will face tremendous pressure.”
The El Salvador Central Bank did not respond to a request for comment.
Steve Hank, a professor of economics at Johns Hopkins University, once advised emerging market countries on currency issues. He stated that Bitcoin makes it almost impossible for banks to comply with the “know your customer” rule, and that the country is risking opposition. Money Laundering Financial Action Task Force.
“It is not a currency, but a very speculative asset,” said Hank, a long-time advocate of dollarization. “Bitcoin has a lot of risks, and this risk will be borne by taxpayers.”
Additional report by Michael Stott in London
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