A year after El Salvador made Bitcoin legal tender, things are not looking good

Last year, El Salvador made international headlines when its leader, Nayib Bukele, announced it would be the first country to accept Bitcoin as legal currency.

His hope was to make El Salvador the premier destination for global crypto investment, strengthen the nation’s economy and plug more of its unbanked population into the financial system. But as the price of Bitcoin has fallen, those ambitions have been diminished, if not broken entirely.

Sabrina Escobar, a reporter who traveled to the country to see how the Bitcoin experiment has paid off, shared her findings in a recent cover story for Barron’s and joined the Texas Standard to break down what she saw.

This transcript has been edited lightly for clarity:

Texas Standard: The passage of the Bitcoin law last year in El Salvador meant that vendors, banks, merchants all had to legally accept bitcoin. You recently spent some time in the country talking to business owners. Are many of them accepting Bitcoin payments these days?

Sabrina Escobar: The funny thing about the law is that it was done very quickly and therefore there was a lot of confusion. And one of the big confusions is about whether merchants had to take Bitcoin or not. The original passage of the law said that all businesses had to accept Bitcoin because it’s legal tender – that’s kind of what legal tender is. But because there’s so little understanding of it, they added this kind of confusing warning at the end saying it’s optional.

So now what’s really happened is you’re seeing big institutions or big businesses have to take Bitcoin or somehow accept the cryptocurrency in day-to-day business and consumer payments. But smaller businesses – people in the informal sector, which is a very large part of the Salvadoran economy, are not forced to do that. And then it really becomes more of an optional thing for many people. And I would say that most people at this point have chosen to take Bitcoin.

Before we get too far into how things look right now, can you first explain a little bit about the big idea here? What was the vision behind this law?

It kind of depends on who you ask. There is still a lot of confusion, again, about what really motivated the law. President Bukele really had this vision of creating a Bitcoin paradise. On the one hand, he claims that Bitcoin will be a new way to tap the country’s unoccupied population, which is about 70% of its 6 million inhabitants, and it will also be a way to promote financial inclusion and to bring about economic liberation and to be part of this larger new wave of a global currency. And it will also for him be a way to attract foreign investment into the country and really bring crypto investors to El Salvador and invest in mining and all that comes with it.

You point out in your reporting that El Salvador is a country where approximately half of the inhabitants have internet access; Bitcoin and blockchain are technologies that require the internet. Did you get the feeling that most El Salvadorians are actively using or familiar with cryptocurrencies?

I would say that there are very, very few people who are familiar with, you know, really what Bitcoin is and what cryptocurrencies are in the country in general. There are some pockets of El Salvador that are very crypto-friendly or crypto-savvy. You know, the famous one is called El Zonte Beach, which is now known as Bitcoin Beach, and that community uses Bitcoin, I would say quite a bit, but most people still use cash, because that’s what they know. That is for sure; they don’t need to learn how to use technology. And I’d say most of the country is still confused, skeptical, or just plain doesn’t know much about it.

El Salvador has made a significant investment in this project, not only in buying the Bitcoins itself, but also in the infrastructure required to use them. Can you say more about some of the investments the country has made in regards to crypto?

The actual figures are a bit unclear because the government has not officially released many of the figures. So you have some estimates that say anywhere between $200 million and $300 million on digital infrastructure, and that’s gone into things like creating a state-owned wallet called the Chivo Wallet — “chivo” is Salvadoran slang for “cool.” You have over 200 Bitcoin ATMs across the country and it’s all added up.

You know, I want to say something in context: It doesn’t seem like much. El Salvador’s annual budget is about $8 billion, so $250 million in the grand scheme of things is really a small percentage. But there are other pressing needs, critics argue: It’s a country with a lot of needs, and maybe you need to invest it in what the country needs right now.

In your view, does the criticism that President Bukele is facing right now have more to do with how this Bitcoin program has been managed in the country? Or is it more to do with the timing and the fact that the price of Bitcoin has been going down lately?

The Bitcoin law from the beginning had a lot of resistance, so even when he announced it – which was last summer, and the law went into effect in September – at that time Bitcoin was rising, and it was at a very high level. level indeed. Bitcoin peaked somewhere in the fall and it has since lost its value. But even from the moment he announced it, there was a lot of resistance, not because the price dropped or what have you, because actually it wasn’t; That went really well. Some made a lot of money during that period.

So it was really about the essence of implementing a currency like cryptocurrency that was relatively unproven – it’s only been around for 13 years – and the volatility that can come with that, or just the uncertainty of that.