It is now two years after El Salvador became the first country in the world to adopt Bitcoin as a legal tender. Since September 7 2021, when the daring decision was made by President Nayib Bukele’s government, numerous events of significance have transpired.
The Terra Luna ecosystem has crashed, the FTX debacle has occurred and on a more positive note, an African country, Central African Republic (CAR) sort of followed El Salvador’s trajectory in 2022.
Related post: Central African Republic launches official crypto, Sango Coin
However, has the El Salvador Bitcoin Law bettered the livelihood of its citizens? Are the pros more than the cons? Is it advisable for other countries to toe El Salvador’s path? Let’s have a look.
The state of Bitcoin as El Salvador’s legal currency
The landmark decision, championed by President Nayib Bukele’s government, demonstrated the trust vested in Bitcoin and it was well received by crypto enthusiasts at the time.
However, two years down the line, trends have shown that the decision by the ambitious president might not be going as planned. Integrating Bitcoin into daily life has presented numerous challenges to El Salvadorians.
Firstly, like almost every other developing country, cash is still king in El Salvador and almost 70% of its population is unbanked. Also, assessments say the Bitcoin transition leaves behind those who do not have a smartphone (predominantly older Salvadorans) and those without internet access.
Additionally, it can be found out that the project was not well thought out before it was implemented because many Salvadorans were clueless about Bitcoin before it was found out their country planned to make it legal tender. A poll of around 1,300 Salvadorans by the Central American University leading up to the rollout showed only about 10% of respondents fully understood cryptocurrency.
Read also: Central African Republic (CAR) creates a 15-member committee to draft crypto bill
Also, it was discovered that many citizens just downloaded the Chivo Wallet App, spent the $30 bitcoin incentives and ditched the app, and bitcoin usage altogether.
Nayib Bukele takes pride in purchasing Bitcoin with government funds. To date, the government has acquired over 2,000 bitcoins. But since reaching a high of nearly $69,000 in November 2021, the price of a single bitcoin has fallen, reducing the value of the country’s Bitcoin holdings by over 60%.
Should any country make Bitcoin a legal tender at this point?
As a nascent and speculative asset, it is not advisable for a country to embark on the experimental journey that El Salvador is attempting, at least for now.
Central Africa Republic, in April 2022 sort of followed the Central American country’s footprint, although theirs was much on its proposed blockchain-based Sango Project. The reception in the African country has not been positive and no development of significance has been heard of the project recently.
Also, economists have speculated on a link between the El Salvador Bitcoin bonds and its debt crisis. This put the country in a terrible fix because the country has been chided by the International Monetary Fund which has constantly told Nayib Bukele to discard Bitcoin as legal tender.
What could be deduced from the whole scenario is that Bitcoin City plans, the Sango Project and other ‘revolutionary ideas’ being embarked on are too utopian, especially for developing countries in Africa.
CAR aims to create a crypto island and a citizenship scheme based on cryptocurrency investment while the majority of its citizens still lack access to basic infrastructural developments like electricity, internet and smartphones.
Also, with major financial institutions like the IMF at odds with Bitcoin, making that move would complicate relationships with regional and international agencies. With this, it is important to consider the challenges attached before embarking on a project that might eventually end up as a bubble, affecting the lives of millions, in the process.
El Salvador’s decision to embrace Bitcoin as legal tender is a historic moment in finance. It demonstrates the nation’s boldness in embracing innovation for the benefit of its citizens. Even though the country faces numerous challenges, its commitment to Bitcoin remains steadfast and could be applauded.