It was Bitcoin Day in El Salvador

Today, September 7, 2021, Bitcoin (BTC) became legal tender in El Salvador.  That makes El Salvador the first country to adopt the crypto-currency as one of its recognized currencies, along with the US dollar, for engaging in all sorts of transactions.   This comes only four months after Nayib Bukele announced his plans at a speech to a Bitcoin conference in Miami.    It is still a plan with which the Salvadoran public disagrees.

The day started with technical glitches as the Chivo digital wallet app did not appear in the Apple or Android app stores at the start of the day.   President Bukele tweeted that testing was still going on.   By mid-day, the app was available for Apple devices, but later in the day it was still not available for Android devices other than Huawei phones through the Huawei app gallery.

On social media, it was a day of competing images.  The twitter account of Chivo spent the day tweeting the advertisements of various local establishments who announced they were accepting Bitcoin.   (Legally, every business which has the technical capability to accept Bitcoin is supposed to do so under the law).  In addition to local firms, Starbucks, Pizza Hut, McDonalds, major cellphone companies, all showed themselves ready to accept Bitcoin payments.

Local bakery ad

But the day also saw protests against the adoption of the Bitcoin law.   Marchers went from the Salvador del Mundo monument to the outskirts of the Legislative Assembly.  The marchers were decrying recent actions by Bukele to consolidate power such as the destitution of one third of the country's judges and a court ruling opening the way for Bukele to double his consecutive years in office.  In addition, many marchers carried signs demanding a repeal of the Bitcoin law.   (Video of protests)

Usulutan protest

The fact that many businesses now advertise their acceptance of Bitcoin should not be at all surprising.  Each Salvadoran who downloaded the country's Chivo wallet receives $30 worth of BTC automatically.  Potentially, that's millions of dollars waiting to be captured by the merchants who can persuade consumers to spend their BTC with them.  The $30 gifts of BTC (which are not permitted to be withdrawn as US dollars) are intended to incentivize merchants to be ready to accept BTC throughout the economy.  

At a local supermarket, the cashier said no one had asked him on Tuesday to pay with Bitcoin.

According to reports on social media, even members of the diaspora living in the US holding a Salvadoran national identity card, were able to get the $30 bonus by downloading and registering with the Chivo app.

The crypto-currrency market also decided to give Salvadorans a real world example of what volatility looks like.   During the course of the day, the value of Bitcoin dropped as much as 16% before stabilizing closer to a 10% loss.  This meant the Salvadoran government experienced a single day currency loss of more than $2 million on its purchase of 550 Bitcoins to finance the rollout of Chivo and the $30 bonus.

The real test of this "Chivo Bitcoin experiment" will be after those $30 BTC bonuses have been spent -- do Salvadorans find a reason to put more money into this system, or do they continue with their regular cash-based family economics? Here the government is betting on remittances.  The goal is to have remittances fund additional infusions into the Chivo network.  And best case for the government is that those funds go from Chivo user to Chivo user within the network, without ever needing to be converted out into hard currency or going elsewhere in the crypto-universe.  As long as funds stay within the Chivo network, the government manages its risks and its costs.  Worst case future scenario? -- Salvadorans place large sums of money into the Chivo network.  They may keep that money in US dollar balances and think it is safe -- but will the government have the hard currency reserves to back up this system if there is a sudden loss of trust with a cyber-panic and a run on the bank?      

With the novelty of Bukele's Bitcoin gambit, the international press has been all over the story.   Here's a sampling: