In El Salvador, More People Have Bitcoin Wallets Than Traditional Bank Accounts

In El Salvador, More People Have Bitcoin Wallets Than Traditional Bank Accounts

On September 7, 2021, El Salvador’s Bitcoin Law granting the currency legal tender status went into effect. Remarkably, in just one month, there are more Salvadorans with bitcoin wallets than traditional bank accounts.

After Salvadoran president Nayib Bukele announced that the country would adopt bitcoin as an official currency, there were doubters at home and abroad.

Opponents of Bukele’s government protested the move, vandalizing one of the Chivo ATM machines that Salvadorans can use to exchange bitcoin for U.S. dollars (El Salvador’s other official currency). Mary Anastasia O’Grady, Americas columnist for the Wall Street Journal, described the Bitcoin Law as a “scam,” mocking Chivo’s “rocky start.”

It appears, however, that supporters of the Bitcoin Law may have the last laugh.

Three million people have downloaded the Chivo bitcoin wallet, according to Bukele, amounting to 46 percent of the population. By contrast, as of 2017, only 29 percent of Salvadorans had bank accounts.

Notably, Salvadorans appear to be converting U.S. dollars into bitcoin and holding onto the digital currency, according to Bukele. “The incoming USD quadruples the outflow,” tweeted Bukele on October 6.

The Chivo numbers don’t tell the complete story. Salvadorans don’t have to use Chivo, the government’s officially sponsored bitcoin wallet, if they don’t want to. Any Lightning Network-enabled bitcoin wallet, such as the Bitcoin Beach Wallet or Jack Maller’s Strike can be used to interact with Salvadoran merchants.

Bitcoin adoption is likely to continue to rise in El Salvador; on September 29, Bukele announced that Chivo had “negotiated with the largest gas stations in the country” to reduce the price of gasoline by 20 cents per gallon for those who pay through the app. That’s on top of the $30 in seed money that the government has deposited in every Salvadoran’s Chivo account.

There remain hurdles to universal bitcoin usage in El Salvador. Merchant adoption remains gradual; a survey by the Salvadoran Foundation for Economic and Social Development found that 93 percent of Salvadoran companies reported receiving no payments in bitcoin. And the Chivo wallet enables instantaneous conversion of bitcoin to and from dollars, obviating the need for consumers to spend or save in dollars if they don’t want to.

Nonetheless, the wide adoption of the Chivo wallet is impressive, especially in comparison to traditional banking: as Bukele says, “very surprising so early in the game,” especially in September, when bitcoin’s price did not appreciate.

Most importantly, the impact of Chivo is likely greater among low-income Salvadorans who have access to smartphones but not banks. Among El Salvador’s two poorest quintiles, many of whom live in rural areas, only 6 percent have bank accounts. If El Salvador’s poorest can benefit from bitcoin, everyone can.

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