El Salvador is the first country in the world introducing Bitcoin (BTC) as legal tender, making the cryptocurrency an official currency alongside the U.S. dollar. From September 7, 2021, residents can pay taxes with BTC and businesses cannot refuse Bitcoin payments. El Salvador had one of the lowest incomes per capita in Latin America in 2020. The government hopes Bitcoin adoption will increase economic development and make El Salvador more attractive for foreign money. This can come from (crypto)investors or tourists, but especially from Salvadorians who live abroad and send money back to their families. Remittances mostly come from the United States as people from Salvadorian descent rank as one of the largest Hispanic population groups living in the U.S. The Bitcoin rollout, however, received mixed responses both domestically and internationally. Half of the Salvadorians who receive remittances, for instance, had not yet discussed the use of Bitcoin for this purpose by July 2021.
Local skepticism: El Salvador’s domestic response to Bitcoin
Crypto gained increasing interest among countries in Latin America in recent years, and enthusiasts noticed this – even planning coordinated buys of 30 U.S. dollars' worth of Bitcoin to celebrate developments in El Salvador. Several of the countries with the most developed CBDC – crypto developed and tested by central banks – came from Latin America in 2020. Venezuela created the world’s first state-backed digital coin, the Petro, back in 2018 to counter the hyperinflation of the bolivar. Indeed, cryptocurrency adoption is generally higher in developing countries. International financial institutions, however, raised questions on El Salvador’s Bitcoin plans. Moody’s, for instance, downgraded El Salvador’s debt after the IMF said the tender could destabilize prices. Developed countries prefer stablecoins – cryptocurrencies connected to fiat currencies like USD, making them less volatile – and are skeptical of Bitcoin. The market cap of several of these stablecoins grew dramatically between 2020 and 2021.
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