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Bitcoin has become the official currency in El Salvador. Financiers doubt it will end well

September 7, 2021

Caption 'Bitcoin is accepted here'AUTHOR PHOTO,AFP

Photo caption,

The US dollar has been the only currency in the country since 2001. Now even small shops will accept bitcoin

The small Central American state of El Salvador has recognised bitcoin as legal tender for the first time in the world. The law, which came into force on September 7, requires all businesses and organizations to accept the cryptocurrency for goods and services alongside the U.S. dollar. El Salvador does not have its own currency.

El Salvador's charismatic and popular 40-year-old president, Nayib Buquele, who initiated the law, says the measure will spur economic growth and make it easier and cheaper for Salvadorans to transfer money earned abroad back home. Some 50,000 Salvadorans are already using bitcoin, he said.

"Tomorrow, for the first time in history, the eyes of the world will be on El Salvador, and it will be thanks to bitcoin," he wrote on Twitter on Monday. At the same time, the head of state acknowledged that "any project aimed at the future does not produce results the next day or the next month."

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The National Congress, where the president's supporters are in the majority, passed the bill he introduced in June a day after it entered the chamber.

Mike Peterson, director of the Bitcoin Beach project promoting cryptocurrency in El Salvador, points out that, unlike in the US and Europe, most Salvadorans do not have bank accounts or the ability to use payment apps. "Now they get a pass to the digital world, will be able to pay online, send each other money hundreds of miles away, all with almost zero fees," he said.

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Peterson has no doubt that the positive effects will soon manifest themselves. "People will be able to make savings to make a new roof in their house, buy a cow or send their children to school - something they were deprived of before," he says. "It should be profitable. My relatives in the US will be able to transfer money almost for free," Reina Isabel Aguilar, a shopkeeper in the town of El Zonte, 50km southwest of the capital El Salvador, told Reuters.

Millions of Salvadorans could directly benefit from the introduction of bitcoin as a national currency now. Citizens who install a specially designed mobile app on their phones will get about $30 in bitcoins into their digital wallet. This app, however, has yet to appear on the App Store and Google Play, which has drawn the ire of Bukhele.

On the eve of bitcoin's introduction as the national currency, El Salvador bought 400 bitcoins (about $20 million at the current exchange rate), which led to a sharp rise in the cryptocurrency's value: it exceeded $52,000. A few hours later, investors began to realise the risks associated with bitcoin, and the rate dropped to around $50,000.

The government has also installed two hundred electronic ATMs across the country to convert bitcoins into dollars without a fee. Some of them are guarded by the military to prevent vandalism by bitcoin opponents.

Michael Carney founded his first company at the age of 18.

He started his political career in the left-wing Farabundo Marti National Liberation Front party.

Was expelled from the party for "disrespecting" women's rights and for throwing an apple at a regional leader.

Experts described him as an opportunist and anti-system politician. He switched political parties three times before various elections.

He won the presidential election in the summer of 2019.

When he took office, he appointed eight women to the government, including seven heads of ministries.

This year, US authorities expressed concern over the decision of the Bukela-controlled parliament to remove the country's attorney general and five Supreme Court judges.

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To support El Salvador, users of social networking sites Twitter and Reddit started buying bitcoins. They staged a promotion that asks people to spend $30 to buy a small share of bitcoin.

Voices of scepticism

However, the majority of the country's residents do not approve of the decision to introduce bitcoin as a national currency. Survey data shows that around 70% of El Salvador's population doesn't understand how the cryptocurrency works and doesn't trust it, including because of the sharply fluctuating exchange rate.

Many Salvadorans disapprove of the decision to introduce bitcoin

"My daughters, who work in the US, said they would rather pay $10-$15 to transfer a hundred dollars the normal way."

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