W.HEN ASKED If someone has tried to pay for them with Bitcoin, a woman who sells coffee and pastries in San Salvador, the capital of El Salvador, replies “Thank God, no” and rejects an attempt to do so. A man who sells soup for lunch wipes the idea off with laughter. For dinner, if the phone battery and morale are low, your correspondent will be referred to a bar called Leyendas, which has the Strike logo, a digital Bitcoin wallet, on the walls. But trying to pay with Bitcoin runs into confusion. The owner of the bar who controls the wallet is missing. A few hectic text messages later, he sends his wallet address. Eventually, 26,618 satoshis (one hundred millionth of a bitcoin) worth $ 12.50 will be exchanged for beer.
On September 7th, Bitcoin becomes legal tender in El Salvador alongside the dollar. The Central American country with 6.5 million inhabitants is the first to dare such an achievement. A week before the big day, those who had plans to use Bitcoin were the exception rather than the norm. Three-quarters of Salvadorans polled by Disruptiva, a polling firm, in July were skeptical of the Bitcoin launch plan. Two thirds were not ready to be paid in it and almost half did not know anything about it. Both the World Bank and the IMF warned against its introduction and cited the possible effects on the macroeconomic stability and environmental costs of Bitcoin.
Legal tender is usually defined as the money courts must accept in order to pay off debts. However, El Salvador’s Bitcoin law goes further and states that companies must accept the cryptocurrency as a means of payment for goods or services. It also came into effect very quickly. Nayib Bukele, the country’s president who controls a large majority in the legislative assembly, announced his plan to make Bitcoin legal tender at a cryptocurrency conference on June 5. The law was passed just three days later.
Skeptics have postulated the move is just a stunt: a sucker for Ibrajim and Yusef Bukele, the president’s brothers who are crypto enthusiasts. But the president claims the move will help El Salvador attract foreign investment and reduce remittance costs. He may not be entirely wrong. The move could attract deep-pocketed crypto investors (though it might put off more conventional ones). And his experience can provide a case study on whether any of the long-touted benefits of Bitcoin work for ordinary people. A diaspora of around 2 million Salvadorans sends remittances worth 20% of GDP home every year. But cross-border bank and wire transfers are slow and expensive. Wallet-to-wallet Bitcoin transfers are quick and free.
The attempt will likely expose Bitcoin’s limitations as well. Many locals understandably fear its volatility, which makes it unsuitable for payments and debt. Those who accept it, like Leyendas, do not indicate prices in it, but convert them into dollars at the point of sale. And there may be unexpected fees that could hinder usage. 200 Bitcoin ATMs are installed across the country so that cash in digital wallets can be converted into Bitcoin. The from The economist took a 5% fee. “I won’t use it,” says Irma Gómez, who runs a diner nearby ATM in Santa Tecla, a town outside of San Salvador. But she is also fascinated. “Let people try.” ■
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This article appeared in the Finance & Economics section of the print edition under the heading “Satoshis for cervezas”