El Salvador President Nayib Bukele has offered to give away $30 in Bitcoin to all citizens who decide to download the government’s BTC wallet called Chivo, which is slang for “cool” in the the Central American nation.
The country’s authorities are trying in that way to encourage people to use cryptocurrency in order to minimise the usage of the American dollar.
People will be able to download Chivo simply by using their phone number and ID number. Beginning from September 7, Bitcoin will become the legal currency in this country and Bukele hopes that this could attract many investments and improve citizens’ buying power.
He also added that bank accounts in dollars will remain in dollars, as well as salaries and pensions.
“Why create this law? Because Bitcoin has a $600 billion market capitalisation globally and if we do this, investors and tourists who own Bitcoin will come to the country and benefit Salvadorans and the economy,” he stated.
He also added that there are positive and negative sides to printing money. Still, as Salvadorans use the American dollar as their legal currency, they don’t feel any positive sides of printing money in the US.
However, what they feel is the negative influence of such printing that leads to inflation. In times of inflation and, therefore, recession, people tend to turn their investments to other assets such as real estate, precious metals, or, in this case, cryptocurrency.
“Chivo” means “go” in Spanish and is slang for “cool” in El Salvador pic.twitter.com/znjmILYzOA
Bukele explained that the consumers will be able to pay businesses with Bitcoin from their wallets for items listed in dollars. However, if business owners want to receive USD, there is a button in the Chivo application that turns the Bitcoin to dollars.
El Salvador is the first country in the world that started accepting Bitcoin as legal tender and, therefore, all who do business in the country will be forced to accept it. However, a private citizen has the opportunity to choose whether to accept Bitcoin or not. Still, if it’s known that the minimum wage in the country is around $430 (but starts from as low as $103), there is a reasonable belief that plenty of people will be accepting BTC.
Not everybody is happy with this solution. According to Fitch Ratings, this adoption might increase the need for local banks to boost their Anti Money Laundering (AML), and terrorist financing standards. The Fitch Ratings said that Salvadoran banks are not ready to implement the proposed Bitcoin legal tender provision and that this “could weigh on investor confidence.”
“A rushed implementation of the new alternative payment system platform will affect financial institutions’ management framework for operational, cyber/ransomware, currency and liquidity risks, with additional implications for banks’ underwriting standards,” the Fitch Ratings said.
The move was also criticised by the International Monetary Fund as well as by the World Bank that said it will not help with Bitcoin implementation.
One thing is sure, whether successful or not, El Salvador’s example will give us a good view of how it is when Bitcoin is used in everyday life.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.