As cryptocurrency becomes more mainstream, both supporters and critics have asked the question of whether it will become officially endorsed by a country? That question was answered on Tuesday, September 7, when El Salvador officially adopted bitcoin as a means of currency.
President Nayib Bukele was adamant about the change, posting videos of people using Bitcoin as a currency all over his social media platforms to encourage people to transition to bitcoin. He argues that the change will save Salvadorians over $400 million per year on commissions for remittances to help those with no bank accounts.
So let’s take a look at the response to that decision and what some of the effects are.
While Bukele is supportive of the new measure, many in the country fear the currency. They are scared of the volatility and losing the money because of instability. Their fears aren’t exactly unfounded, seeing as bitcoin dropped almost 10% right after being adopted by the country. Granted, that may have also been caused by a temporary suspension of the government wallet Chivo to “increase the capacity of the servers.”
As well as fears from the citizens, international organizations are worried too. S&P Global warned that the adoption could increase fiscal responsibilities, hurt banks through mismatching currencies to give loans out with, and lose any chance of joining a support program with the International Monetary Fund.
Furthermore, the IMF criticized the move. Alvaro Trigueres, an economist in El Salvador, compared adopting bitcoin to playing at the casino. He believes that the currency isn’t stable enough to be adopted by the government and that the move could lead to a complete unraveling of the economy.
Only a few weeks after becoming the first country to adopt bitcoin as legal tender, El Salvador also becomes the first country to deal with the consequences and civil distrust in the system. Facing criticism from global organizations to his own citizens, all eyes are on Bukele to either double down on the measure or come to a compromise while billions of dollars in loans are on the line.