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- On El Salvador’s bitcoin experiment, the reactions are mixed: some hail it as the greatest progressive step in history toward allowing financial access, while others call it a foolish risk and a credit-rating nightmare.
- After months of Chivo troubleshooting, Bukele is now faced with a new problem: financing.
- El Salvador’s financial flow will be good until the first half of 2022, but the payment due in 2023 is still doubtful, according to Marshik.
El Salvador’s President Nayib Bukele stated in a taped video at a full convention hall in Miami in early June 2021 that the Central American country will soon be making history. Bukele insisted that Bitcoin will become legal currency in El Salvador and that it would be fantastic.
Four months into El Salvador’s bitcoin experiment, the reactions are mixed: some hail it as the greatest progressive step in history toward allowing financial access, while others call it a foolish risk and a credit-rating nightmare.
El Salvador’s Bitcoin Law was passed just days after Bukele announced his bitcoin aspirations. Approximately three months later, on September 7, 2021, bitcoin replaced the US dollar as El Salvador’s official currency.
Chivo’s problems
A portion of the $200 million was utilized to build and release the Chivo Wallet app, which is designed for bitcoin transactions and is compatible with other major digital wallets. Chivo offered an incentive to attract cautious Salvadorans: everyone who downloaded the app after it was released on September 7 would receive $30 in bitcoin.
“We learned from the president a month later that around three million customers had downloaded the wallet,” said Andres Pineda, treasurer of El Salvador’s Banco Cuscatlan.”However, because the government built nearly 200 ATMs around the country, the bulk of individuals was able to monetize the $30 that had been placed in their wallet and cash out.”
According to a local newspaper in El Salvador, many Chivo customers downloaded the wallet simply to collect the $30 and never use the service again.
The Chivo Wallet, too, has flaws. Only a citizen’s date of birth and national identity card number was required for the app, which did not demand picture identification (similar to a social security number). According to local accounts, this led to claims of fraud, and the government immediately stopped its Chivo advertising effort on social media and on the radio in October in response to objections.
Financial Problem
After months of Chivo troubleshooting, Bukele is now faced with a new problem: financing.
El Salvador holds an $800 million bond that will mature in January 2023. Moody’s reduced the country’s debt rating to CAA1 in July 2021, indicating that it is a danger of loan default.
Public perception is also increasing as a result of Bukele’s series of tweets making light of the issue. Bukele stated in another tweet that he trades bitcoin on behalf of El Salvador on his smartphone.
“That type of conduct doesn’t help; it truly shows that he either doesn’t understand or doesn’t care,” said Nathalie Marshik, Stifel Financial Corp.’s head of emerging markets sovereign research.
What next after the failure of the chivo wallet?
El Salvador’s financial flow will be good until the first half of 2022, but the payment due in 2023 is still doubtful, according to Marshik.
“They have a few options,” she explained. “We know they have some deposits at the central bank, we know that they’re going to have a massive increase in revenues in April when people pay their taxes, and we know that they’ve had a very good program to fight evasion.”
Given El Salvador’s economic circumstances, the failure of Chivo Wallet, and individuals’ overall lack of interest in bitcoin, some have called the experiment a failure. Others argue that it is too soon to pass judgment.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
