Using Bits in El Salvador
El Salvador is a tiny country, bit smaller than New Jersey and about the same population as Maryland, but with a GDP/capita of $8,388 (NY State GDP/capita is $87,866 for reference) it is not a rich country and ~70% of the country’s population does not have access to traditional financial services, such as a bank account or credit card. It does have one defining characteristic however, it is now the first country to approve Bitcoin as a legal currency, with the parliament passing a bill (64 for, 24 against) yesterday that gives Bitcoin “…currency with free powers, unlimited in any transaction, and freely available to anyone, public or private”, according to the country’s President. The official currency of El Salvador has been the US dollar since 2001. The price of Bitcoin spiked on the news.
The country recently announced a partnership with Strike (), which went live in the country in April, is there to help set-up a fintech banking infrastructure, and given the lack of financial regulations, it is open to a wide variety of efforts to help the local community, or so the press reads, and is pioneering, not the conversion of bitcoin into local currency, but the conversion of all transactions into bitcoin. This means paychecks can be issued in bitcoin and bills can be paid in bitcoin, with local businesses posting item pricing in bitcoin, and ATMs converting bitcoin into cash.
While this is a novel idea, albeit a bit unusual for an economy that receives 20% of its GDP from payments to citizens from relatives outside of the country, there are few regulations that both safeguard citizenry and help to regulate transactions. While bitcoin is said to be the ultimate in transparency, given that all bitcoin transactions are permanently stored and but not identified by name, there are a vast number of ways in which bitcoin purchases, sales and transactions can be made ‘less transparent’ and disassociated from those who wish to use them for nefarious purposes. Will El Salvador become a hub for those who have accumulated Bitcoin wealth ‘illegally’? Likely not, but it will be interesting to see how this plays out in such a microcosm. We are not sure how the population of El Salvador would have viewed the rise of Bitcoin from 29,004 on 12/31/20 to its peak of 65,587 in April, and its fall to 34,877 currently on their bank accounts, while the US Dollar index moved from 89.97 to 90.86 over the same period, but with 70% of the population without bank accounts, maybe it is the right place to try it out..
The country recently announced a partnership with Strike (), which went live in the country in April, is there to help set-up a fintech banking infrastructure, and given the lack of financial regulations, it is open to a wide variety of efforts to help the local community, or so the press reads, and is pioneering, not the conversion of bitcoin into local currency, but the conversion of all transactions into bitcoin. This means paychecks can be issued in bitcoin and bills can be paid in bitcoin, with local businesses posting item pricing in bitcoin, and ATMs converting bitcoin into cash.
While this is a novel idea, albeit a bit unusual for an economy that receives 20% of its GDP from payments to citizens from relatives outside of the country, there are few regulations that both safeguard citizenry and help to regulate transactions. While bitcoin is said to be the ultimate in transparency, given that all bitcoin transactions are permanently stored and but not identified by name, there are a vast number of ways in which bitcoin purchases, sales and transactions can be made ‘less transparent’ and disassociated from those who wish to use them for nefarious purposes. Will El Salvador become a hub for those who have accumulated Bitcoin wealth ‘illegally’? Likely not, but it will be interesting to see how this plays out in such a microcosm. We are not sure how the population of El Salvador would have viewed the rise of Bitcoin from 29,004 on 12/31/20 to its peak of 65,587 in April, and its fall to 34,877 currently on their bank accounts, while the US Dollar index moved from 89.97 to 90.86 over the same period, but with 70% of the population without bank accounts, maybe it is the right place to try it out..
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