El Salvador and Bitcoin
President Nayib Bukele in a national address on Thursday stated that the government (through the mobile wallet Chivo) will distribute $30 worth of bitcoin to Salvadorians who sign up to the wallet.
“It will be within the Chivo app where we will deposit the $30 in bitcoin to promote its use in the economy and to give people an incentive to use the application” – @PresidenciaSV via Twitter.
However, not every eligible citizen is obliged to partake in the airdrop, as clarified by the official twitter account of the presidency in a later tweet.
“Receiving bitcoin is totally optional. This is because there is an Art. 7, but there is also an Art. 8 and there is also an Art. 12. By reading all the articles, or simply seeing how the wallet works, you can understand that it will not affect anyone.” — @PresidenciaSV via Twitter
The market responded swiftly to the news as expected, with bitcoin jumping by close to 4% on the 24-hour chart to around $34,100. In such a torrid time for the cryptocurrency world, El Salvador’s decision to make bitcoin a legal tender helped calm fraying nerves. The news emerged shortly after the cryptocurrency market took a nosedive, resulting in losses to the tune of half the entire market capitalization. At press time, global cryptocurrency market cap stood at $1.77 trillion, representing a 50.78% decline from the all-time high of 2.56 trillion reached in May 11,2021.
Criticism of El Salvador
The new bill will not take effect until September 7th this year, but that has not held back the barrage of backlash. Ex US presidential advisor, Steve Hanke is one of the prominent critics of El Salvador’s adoption of bitcoin as a legal tender.
“It has the potential to completely collapse the economy because all the dollars in El Salvador could be vacuumed up, and there’d be no money in the country. They don’t have a domestic currency.” He said.
The World bank also refused to support El Salvador’s quest, citing “environmental and transparency” shortcomings. This came after the country’s finance minister Alejandro Zelaya requested technical support from the apex bank. The International Monetary Fund (IMF) is also not enthused by the development, with spokesperson Gerry Rice stating that “adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis”.
On the flip side, the Central American Bank for Economic Integration (CABEI) has praised El Salvador’s move, outlining the potential economic impact through opportunity creation. The bank also offered technical support to fast-track bitcoin adoption.
El Salvador is however undeterred in the face of heavy criticism as they remain keen on completing a transition later this year. The move may have ushered in a new trend, with Paraguay on the path to become the second nation to adopt bitcoin as a legal tender.