El Salvador’s national experiment with cryptocurrency went live Tuesday as Bitcoin officially became legal tender, making it the first country in the world to do so. Businesses in the Central American nation are now expected to accept Bitcoin, alongside the U.S. dollar, which has been El Salvador’s national currency since 2001. The seismic move is the brainchild of El Salvador’s 40-year-old president, Nayib Bukele, whose government says shifting to digital currency will save Salvadorans $400 million each year in fees on remittances, which make up a quarter of El Salvador’s GDP each year.
To incentivize locals to make the switch, the government has promised every citizen $30 in Bitcoin when they download a government digital wallet. The program called “Chivo” or “cool” also includes ATMs nationwide that enable customers to buy Bitcoin or convert it to cash commission-free. The national government also bought 400 Bitcoins, as part of the national crypto launch, which is also aimed at mitigating the impact of inflationary pressure on the U.S. dollar after recent U.S. government stimulus packages. So far big retailers are leading the way gearing up to accept cryptocurrency, most everyone else is taking a wait-and-see approach.
While crypto-bros around the world celebrated the El Salvador’s landmark move to incorporate Bitcoin, whether it’s actually good idea for the country of 6.5 million to hitch itself to the notoriously volatile cryptocurrency market remains to be seen. Skeptics point out serious potential regulatory and financial risks of relying on Bitcoin, which haven’t been fully gamed out in the government’s break-neck, three-month push to go crypto. Reuters reports that “[a]nalysts fear adopting the cryptocurrency could fuel money laundering in a country with serious problems of government corruption and organized crime.” In the immediate aftermath of the national parliament passing the crypto law earlier this year, Moody’s credit ratings agency downgraded El Salvador’s creditworthiness. The inclusion of crypto in the national ledger has also threatened to derail El Salvador’s push for a billion dollars in International Monetary Fund financing.