Open the software, scan the QR code, confirm the payment – people in the Central American country of El Salvador entered the era of digital payments last week. But they do not use Alipay, WeChat, or the money they actually deposit in their bank accounts, but spend bitcoins through the "Chivo" digital wallet launched by the government.
As the first country in the world to adopt Bitcoin as legal tender, how far can El Salvador go in the face of controversy?
The first "eat crab" experiences the "hipster" life
On September 6, the Salvadoran government, which already holds 350 bitcoins, bought another 200 bitcoins in preparation for the next day's "B Day," or "Bitcoin Day." 200 dedicated ATMs and 50 help centres are ready.
On the 7th, El Salvador became the first country to "eat crabs", announced the use of Bitcoin as legal tender, and launched the "Chivo" digital wallet, an application dedicated to Bitcoin transactions.
Pictured: Elzont residents shop in Bitcoin at a small shop. Image source: GJ
In order to incentivize people to use Bitcoin consumption, the Salvadoran government promised to get a $30 bitcoin "red envelope" as long as it downloaded the "Chivo" digital wallet. President Nayib Bukkel hopes the $30 "start-up capital" could attract more people to Bitcoin.
"Chivo", which means "cool" in Salvadoran. On that day, indeed many Salvadorans experienced a handful and became a "hipster": buying coffee at Starbucks, going to McDonald's to buy a package, showing a small ticket after scanning the code with "Chivo" on social media, and then excitedly telling everyone: "There is really no renewal Of Faye!" ”
Seeing that netizens are so enthusiastic, Bukle is very excited, while playing the role of technical customer service, while joyfully sharing netizens' posts.
In El D'Orzont, el-seaside town, Elzonte, where people live in poverty, with muddy roads and problematic drainage systems, it was the first area in El Salvador to start trading with Bitcoin.
Because 3 years ago, this popular resort town launched the "Bitcoin Beach" project. Nowadays, almost everything from local construction workers receiving salaries to foreign tourists buying things is bitcoin.
Remittance free of charge moved whose cheese
Happy to see El Salvador use Bitcoin as its own fiat currency, there is also El Salvadoran Jemi Garcia, who lives in Canada.
Garcia often needs to send money to relatives back home in El Salvador, but he really hates the remittance process. "I had to go to the Western Union office, give them cash, pay another $25, and then they would send the money." And it would take a full 3 days for Garcia's family to receive the money.
It's not easy to get money either. "They have to take the bus to the Western Union office to get money, there are often criminal gangs hanging around there, and they know what people are going to do there."
Later, Garcia switched to the Western Union app for online remittances, but the handling fee was naturally indispensable - for every $100 transferred, there was a 12.5% fee.
However, spending money reduced his troubles in Canada, but failed to solve the problem of cash withdrawals from his family in El Salvador.
More than 2 million Salvadoran expatriates live abroad, almost a third of The Salvadoran population. They usually send money to their hometowns through third-party institutions, which totaled about $6 billion last year, close to 23% of El Salvador's gross domestic product, but a large part of it went into the pockets of third-party institutions as handling fees.
President Bukele said that solving the cumbersome remittance process, circumventing remittance fees, and providing free and fast cross-border transactions for the public are one of the main reasons why El Salvador has promoted bitcoin as a legal tender. If Garcia sends money to her hometown through the "Chivo" digital wallet, she no longer has to pay a high fee. Relatives in their hometown can go to any of the 200 "Chivo" ATMs installed by the government and withdraw the money in their "Chivo" wallets in US dollars.
Obviously, this moves cheese from some third-party financial institutions.
The price ups and downs of the future is unpredictable
It seems that El Salvador is really cool to use Bitcoin as a legal tender, and some Latin American countries such as Panama and Paraguay are also quite impressed.
However, most Latin American countries remain on the sidelines. And the controversy surrounding El Salvador's "eating crabs" has never been broken. The first person to eat the crab may be brave, but not necessarily able to eat the crab well.
In fact, reducing losses in the remittance process is just one of the reasons El Salvador has legalized Bitcoin. Due to high inflation, the country's monetary system collapsed, and the United States dollar has been the legal tender of El Salvador since 2001. However, over-reliance on the dollar could be a huge risk for El Salvador, which has a poor economy.
Wan Dai, a Latin American scholar and director of the China Society for Latin America, believes that the Bukele government may be looking at bitcoin precisely because it is focused on the characteristics of bitcoin decentralization and not controlled by a single economy, trying to balance the high risk caused by the dollar to the Salvadoran economy and start a process of "de-dollarization". "In this sense, the issuance of digital currency is beneficial to the country's economic and technological development, but the cryptocurrency represented by Bitcoin is not a panacea for all diseases."
Two IMF officials wrote in July that using cryptocurrencies as fiat currencies is a step too big. "One of the reasons is that the price volatility of cryptocurrencies is too strong for relatively unstable economies to bear the consequences of this volatility." Wan Dai said.
Opponents hold up slogans that read , " El Salvador doesn't need Bitcoin" in their hands. Image source: GJ
Xu Mingqi, vice chairman of the Shanghai International Economic Exchange Research Center, also agrees with this view. He said that the sovereign currency is supported by the credit of sovereign countries, thus maintaining the stability of value. As a private cryptocurrency, Bitcoin is easily manipulated by large institutions, investors, and speculators, and often has big ups and downs. Since the beginning of this year, Tesla CEO Musk's repeated changes in face on the issue of cryptocurrencies have made the price of Bitcoin and the mood of its holders ride a roller coaster. "Bitcoin is unlikely to help El Salvador fend off inflation and stabilize transactions, but it could backfire."
The ups and downs of the price of Bitcoin were confirmed on the day of the "B Day" when Salvador officially announced the legalization of Bitcoin.
With the Salvadoran government buying a large amount of bitcoin on the 6th, bitcoin rose to $52,000 that day. But on the 7th "B day", Bitcoin suddenly collapsed, and the price plunged from $53,000 to 19% at one point, and finally closed at $46,270.
"Buy on dips." Faced with Bitcoin's plunge, President Bukele quipped. But seeing bitcoin so volatile, with the price hovering between $44,000 and $46,000 so far, some locals have become more adamant about holding cash. What's more, holding and buying and selling Bitcoin also requires a certain amount of technology. Whether on a value or technical level, bitcoin has not been able to give Salvadorans a sense of economic security.
The IMF and credit rating agencies are also not optimistic about El Salvador's approach. Rating agency Moody's even downgraded El Salvador, continuing to hold negative views on the country's economy.
Given bitcoin's potential financial risks, few countries currently recognize bitcoin transactions as legal, and some countries take a near-"block" stance on bitcoin.
However, El Salvadoran President Bukele is determined to bet on bitcoin, and even intends to let state-run geothermal companies use the country's volcanic resources to generate electricity to "mine" bitcoin.
He seems to have forgotten that Bitcoin mining is extremely power-intensive and has been criticized by governments and environmental groups in many countries. Xu Mingqi believes that with the improvement of people's understanding of low-carbon environmental protection, the value of virtual currencies such as Bitcoin is unpredictable.
From the perspective of cross-border payments, Bitcoin transactions do have advantages. However, Xu Mingqi believes that using this as a reason for bitcoin legalization seems to be upside down, although the fees of traditional remittance channels are avoided, but the large fluctuations in the price of bitcoin will also cause losses.
Even the Internet can not be on the real problem is difficult to solve
In fact, El Salvador is not in the position to fully embrace Bitcoin.
In the early morning of the 7th, the "Chivo" digital wallet was down within a few hours of going online. In the morning, President Bukke almost became a technical customer service, explaining on social media that the server needed to be increased before "Chivo" could continue to serve. "Like all innovations, the promotion of Bitcoin in El Salvador requires a process, and not everything can be done in a day or a month."
El Salvador also did not give a satisfactory answer to the public opinion concerned about how to avoid cryptocurrencies being used for money laundering, terrorist financing, tax evasion, etc.
The more real problem is that nearly a quarter of El Salvador's population lives below the poverty line and only one-third uses the Internet. For Salvadorans who can't even get online, Bitcoin doesn't solve the real problem.
Although Elzont, a seaside town that has long been promoting bitcoin trading, has also supported the QR code of payment on the stall, Zulma Rivas, a 38-year-old fruit stall owner, still believes in cash as king, and rarely uses bitcoin himself. Because like most Salvadorans, Rivas struggled to run the "Chivo" digital wallet on his battered smartphone, and even the broken phone "went on strike" last week. What's more, because of poverty, Rivas often did not have the money to buy traffic to the Internet.
"It's like a mirage." Oscar Picardo, director of science and technology and innovation at Francisco Gavidea University, said: "The digital divide is huge, and many poor families do not have access to the Internet, not to mention that they have other priorities and needs. In his view, even if there is no problem with the Internet, ordinary people need training to avoid being deceived when trading bitcoin.
Still, candy shop owner Jose Herrera believes that "I will continue to suffer with or without Bitcoin". His pessimistic view is also, as the market generally believes, that the speculative nature of Bitcoin as fiat currency is more like a "risk experiment" by the Salvadoran government. Instead of pinning our hopes on virtual currencies, we should focus more on real development.
Xinmin Evening News reporter Qi Xu