Last year, El Salvador made international headlines when its leader, Nayib Bukele, announced that it’d be the first country to accept Bitcoin as legal currency.
His hope was to turn El Salvador into the premier destination for global crypto investment, bolster the nation’s economy, and plug more of its unbanked population into the financial system. But as the price of Bitcoin has tanked, those ambitions have been curtailed, if not dashed entirely.
Sabrina Escobar, a reporter who traveled to the country to see how its Bitcoin experiment has paid off, shared her findings in a recent cover story for Barron’s and joined the Texas Standard to break down what she saw.
This transcript has been edited lightly for clarity:
Texas Standard: The passage of the Bitcoin law last year in El Salvador meant that vendors, banks, merchants all had to legally accept bitcoin. You recently spent some time in the country talking to business owners. Are a lot of them accepting Bitcoin payments these days?
Sabrina Escobar: The funny thing about the law is that it was very hastily done and so it had a lot of confusion. And one of the big confusions is about whether or not merchants had to take Bitcoin. The original passage of the law did say that all businesses had to accept Bitcoin because it is legal tender – that’s kind of in essence what legal tender is. But because there is such little understanding about it, they added this kind of confusing caveat at the end saying it’s optional.
So now what’s really happened is that you see big institutions or big businesses having to take Bitcoin or in some way accept the cryptocurrency in day-to-day business and payments from consumers. But smaller businesses – people in the informal sector, which is a really large part of the Salvadoran economy, aren’t forced to do so. And so it really becomes more of an optional thing for a lot of people. And I would say most people at this point have opted against taking Bitcoin.
Before we go too far down the path of what things look like right now, can you explain first a little bit about the big idea here? What was the vision behind this law?
It kind of depends on who you ask. There is still a lot of confusion, again, over what was really motivating the law. President Bukele really had this vision of creating a Bitcoin haven. On the one hand, he’s touting Bitcoin will be a new way to bank the country’s unbanked population, which is about 70% of the 6 million inhabitants, and it’ll also be a way to further financial inclusion and to bring about economic liberation and to be a part of this larger new wave of a global currency. And it’ll also be, for him, a way to attract foreign investment into the country and to really bring crypto investors to El Salvador and invest in mining and all of the things that come with that.
You point out in your reporting that El Salvador is a country where about half the inhabitants have internet access; Bitcoin and blockchain are technologies that require the internet. Did you get the sense that most El Salvadorians are actively using or are familiar even with cryptocurrencies?
I would say that it’s very, very few people that are familiar with, you know, really what Bitcoin is and what cryptocurrencies are in the country in general. There are some pockets within El Salvador that are very crypto-friendly or crypto-savvy. You know, the famous one is called El Zonte Beach, which is now known as Bitcoin Beach, and that community does use Bitcoin, I would say a good amount, but most people are still using cash, as it’s what they know. It’s secure; they don’t have to learn how to use any technology. And I’d say most of the country is still confused, skeptical, or just doesn’t really know much about it.
El Salvador has made a significant investment in this project, not just in purchasing the Bitcoins themselves, but also in the infrastructure required to use them. Could you say more about some of the investments that the country’s made in terms of crypto?
The actual figures are a little bit hazy because the government hasn’t released a lot of the numbers officially. So you have some estimates that say anywhere between $200 million and $300 million on digital infrastructure, and that’s gone to things like creating a government-owned wallet called the Chivo Wallet – “chivo” is Salvadoran slang for “cool.” You have over 200 Bitcoin ATMs across the country, and that’s all added up.
You know, I will say something kind of in context: It doesn’t seem like a lot. El Salvador’s yearly budget is about $8 billion, so $250 million in the grand scheme of things is really a small percentage. But there are other pressing needs, critics argue: It’s a country with a lot of need, and perhaps you need to invest it in what the country needs right now.
In your view, is the criticism that President Bukele is facing right now have more to do with how this Bitcoin program has been administered in the country? Or does it have more to do with the timing and the fact that the price of Bitcoin has tanked lately?
The Bitcoin Law from the get-go had a lot of opposition, so even when he announced it – which was last summer, and the law went into effect in September – at that point, Bitcoin was rising, and it was at a very high level actually. Bitcoin peaked somewhere in the fall and it has since lost its value. But even from the moment he announced it, there was a lot of opposition, not because the price was falling or what have you, because it actually wasn’t; it was doing very well. Some people made a lot of money during that time period.
So it really was about the essence of implementing a currency like cryptocurrency that was relatively untested – it’s only been around for 13 years – and the volatility that could come with that, or just the insecurity of it.