'CRYPTO WINTER' IN EL SALVADOR: LOCALS SLAM BITCOIN ADOPTION AS 'ROBBERY,' ECONOMIC BENEFIT NOT FELT
Two years ago, El Salvador made headlines as it dived headfirst into the world of digital currencies by adopting Bitcoin as legal tender. Today, the much-touted initiative appears to be floundering as Bitcoin fails to deliver the economic boost that its proponents, including President Nayib Bukele, had anticipated. This venture, the first of its kind globally, was predominantly geared towards widening financial accessibility and revitalizing a dim economy. However, the latest reports and data paint a different picture.
A former Reserve Bank governor has revealed that Bitcoin, rather than empowering El Salvador's economic fabric, left it reeling from the cryptocurrency's infamous volatility. Since its introduction as legal tender, Bitcoin has hemorrhaged more than half its value, a crash landing far removed from its once stellar heights.
Underlining this fall from grace is a recent poll that revealed a prevalent mistrust and low adoption rate. A sizable 71% of respondents claimed that their economic situation had not improved after the adoption of Bitcoin.
The reasons for such dip in public approval are manifold. El Salvador has a substantial unbanked population, and President Bukele has hoped that Bitcoin would serve as an economic lifeline for these individuals, making remittance receipt easier and cheaper. For a country where 70% of the population lacks access to traditional banking services, this seemed a promising solution.
However, the close relationship between technology, infrastructure, and digital literacy seems to have presented an insurmountable barrier. Large swathes of Salvadorians continue to prefer hard cash over the digital currency due to Bitcoin's volatility and their unfamiliarity with cryptocurrency usage.
The government attempted to provide a solution in the form of the 'Chivo' digital wallet, a platform designed to ease Bitcoin transactions. However, this effort has also proven largely ineffective according to recent statistics. Only 1% of all remittances received this year utilized the Chivo wallet platform.
Regardless of the warnings about potential economic risks from renowned international financial bodies like the IMF and the World Bank, President Bukele pressed ahead with the initiative. There were even proposals for a Bitcoin-powered city, an ambitious plan that has yet to yield any significant progress.
One of the unorthodox measures has been the Salvadoran government's direct involvement in Bitcoin trading. The government is reported to have purchased 2,381 Bitcoin. The potential effects of this fiscal decision on the local economy, however, are still unclear.
Through El Salvador's experience, one can glean the difficulties of mandating a decentralized and volatile entity like cryptocurrency in a traditional economic framework. Without a concrete action plan in place to address digital literacy, technological infrastructure, and managing volatility, other nations that might be considering following in El Salvador's footsteps would do well to understand the potential pitfalls before embarking on a similar journey.