El Salvador’s move toward Bitcoin is impulsive

Paul Moon , Reporter

Bitcoin, the crypto-currency that carries dreams of wealth and riches, has taken its next step. From Sept. 7, El Salvador mandated a law that declares Bitcoin as its official national currency.

 

Many El Salvadorans were unhappy with this change, however. The El Salvadoran President Nayib Bukele has faced backlash from his citizens with tensions reaching an apex when Anti-Bukele protestors smashed and burned a newly implemented Bitcoin ATM on Sept. 15. The outrage against Bukele is justified with valid reasons.

 

Firstly, Bitcoin is simply not a stable form of currency. According to data from Google Finance, in the five months since April, the price of Bitcoin dropped from an all-time high of $63,000 US dollars to just $30,842 in July. Even recently, Bitcoin demonstrated its volatility, with its price falling by 22% between Sept. 6 and Sept 28. 

 

This aspect of Bitcoin is most dangerous to the everyday citizen of El Salvador, and protesting citizens have every right to be skeptical. According to the World Bank, the GDP per capita of El Salvador is $4187.25, and average storekeepers and sellers have very thin margins for profit. After the integration of Bitcoin into society, who but the average person would be more affected by a sudden price plunge? 

 

The thought of losing over 50% of their yearly income in the span of a few months must be terrifying for store owners and sellers, who will be required to accept Bitcoin as payment if this law goes into effect. The general population is not ready for the new law, and the rushed implementation only increases instability in the Salvadoran economy.

 

Secondly, as seen from recent protests such as the ones of Sept. 15, many citizens of El Salvador doubt Bukele’s claims about Bitcoin. Bukele claimed that Bitcoin would cut fees for migrants sending money home to El Salvador, attract foreign investors, and help those without bank access reach financial services, leading to a GDP boost.

 

His beliefs stem from a 2020 report of the nation, where nearly one-fourth of the nation’s GDP was reported to be from El Salvadorians abroad sending money back to their families. Bukele has promised that the implementation of Bitcoin will make these transactions easier and more efficient.

 

However, Bukele has not provided any precedents or evidence for this reasoning, failing to convince citizens of his credibility. In truth, the facts support the opposition, and experts such as economist Álvaro Trigueros of the Salvadorian Foundation for Social and Economic Development have criticized this move, stating the potential of an economic crisis. 

 

Economic issues might already be looming. El Salvador is currently negotiating with the International Monetary Fund (IMF) for a one billion dollar loan. The IMF has criticized the Salvadoran government regarding the transition and the 27 million dollar purchase of 550 Bitcoin by Bukele using public funds.

 

Yet some support Bukele’s decision. In a poll conducted by the Central American University located in El Salvador, 32 percent of the people surveyed were found to agree with the move towards Bitcoin. Supporters might believe that because Bitcoin prices have shown to rise in the long term despite the occasional burst of the Bitcoin bubble, this transition to Bitcoin is a beneficial long-term investment. 

 

However, this belief is largely unfounded for the average citizen of El Salvador, who cannot wait months for the next eventual rise in Bitcoin prices. Bukele’s decision ignores the plights of the average storekeepers and sellers with this impulsive move.

 

El Salvador’s move towards Bitcoin is the first adoption of a crypto-currency as a national currency, meaning that the events that follow this historical move will set a precedent for other countries. However, it is clear that El Salvador has entered this unexplored field of the economy without preparation, which could spell disaster. For now, the world will be watching closely.