El Salvador on Tuesday became the first country to adopt bitcoin as legal tender, although it suffered teething problems when the government had to unplug a digital wallet to cope with demand.
President Nayib Bukele, who pushed for adoption of the cryptocurrency, says it will help Salvadorans save $400 million a year on commissions for remittances, while giving access to financial services to those with no bank account.
Doubters say the move may fuel money laundering and financial instability. It has already muddied the outlook for more than $1 billion in financing that El Salvador is seeking from the International Monetary Fund (IMF).
The 40-year-old president is Latin America’s most popular leader but has been accused of eroding democracy, not least by the administration of U.S. President Joe Biden.
Last week, top judges appointed by his lawmakers ruled that he could serve a second term.
Early on Tuesday, Salvadorans trying to download the Chivo digital wallet, which the government has promoted, promising $30 of bitcoin for each user, found it was unavailable on popular app stores. Then Bukele tweeted that the government had temporarily unplugged it, in order to connect more servers to deal with demand.
Bukele blamed Apple Inc, Google and Huawei’s app download platforms for the delay.
“Release him! @Apple @Google and @Huawei,” Bukele wrote in one of his tweets, which was accompanied by a red-faced “angry” emoji. The wallet was later available from Huawei.
BITCOIN BEACH
Polls indicate Salvadorans are wary of the volatility of the cryptocurrency, which can shed hundreds of dollars in value in a
day.
Ahead of the launch, El Salvador bought 400 bitcoins, Bukele said, helping drive the price of the currency above
$52,000 for the first time since May. Hours later, however, it had weakened about four per cent to $50,516.
The change means businesses should accept payment in bitcoin alongside the U.S. dollar, which has been El Salvador’s official currency since 2001 and will remain legal tender.
Some citizens were optimistic.
“It’s going to be beneficial … we have family in the United States and they can send money at no cost, whereas banks
charge,” said Reina Isabel Aguilar, a store owner in El Zonte Beach, some 49 km (30 miles) southwest of the capital, San Salvador.
Known as Bitcoin Beach, El Zonte aims to become one of the world’s first bitcoin economies.
However, uptake across the rest of the country may slowed by a lack of internet penetration. It remains unclear whether businesses will be penalized if they do not accept bitcoin.
In the run-up to the launch, the government installed ATMs that allow bitcoin to be converted into dollars and withdrawn without commission from the digital wallet, called Chivo.
“Like all innovations, El Salvador’s bitcoin process has a learning curve,” Bukele tweeted. “Not everything will be achieved in a day, or in a month.”
LEVERS OF POWER
In barely two years in office, Bukele has taken control of almost all levers of power. But although he has promised to clean up graft, the Biden administration recently put some of his close allies on a corruption blacklist.
Analysts fear that the adoption of bitcoin, whose transaction records are distributed across the internet, beyond the reach of national jurisdictions, could fuel money laundering.
After the bitcoin law was approved, the rating agency Moody’s downgraded El Salvador’s creditworthiness, while its dollar-denominated bonds have also come under pressure.
Bukele, who does not shy away from controversy, on Monday retweeted a video that showed his face superimposed on actor
Jaime Foxx’s body in a scene from Django Unchained, a Quentin Tarantino film about American slavery. The video portrayed Bukele whipping a slave trader who had the IMF emblem emblazoned on his face.
Bukele later deleted the retweet.
In his own tweet, Bukele said: “We must break the paradigms of the past. El Salvador has the right to advance towards the
first world.”
(Reporting by Anthony Esposito and Nelson Renteria; Additional reporting by Wilfredo Pineda in El Zonte, El Salvador and Frank Jack Daniel; Editing by David Gregorio, Catherine Evans and Bernadette Baum)
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