Earlier this month, El Salvador became the first country in the world to begin actually accepting cryptocurrency as legal tender. The country’s charismatic and popular president Nayib Bukele pushed through his plan to implement a national wallet app and to legally oblige all merchants to accept Bitcoin as a legal means of exchange.
The plan was initially lauded by Bitcoin enthusiasts and met with dismay by central banking regulators. The International Monetary Fund refused to help El Salvador with any loans once the country announced the Bitcoin plan, and the World Bank has issued a staunch warning to other countries about the dangers of adopting private money as legal tender.
Even though it’s been weeks since the Bitcoin rollout started, El Salvador is still working through some of the technical (and legal) challenges that come along with such a huge change. The country has faced numerous issues since the rollout began, including a volatile month for Bitcoin’s value, scrutiny from international organizations, and its credit rating being downgraded by companies like S&P Global.
Bitcoin Value Tanked Immediately
In a turn that would sound fake if it was in a TV show or film, Bitcoin’s value tanked 15% the day El Salvador began accepting the coin as legal tender. It was a shaky launch for what Bukele’s government hoped would be a triumphant moment. This situation was coupled with the government-sanctioned wallet app, Chivo, experiencing a series of glitches and failures that raised eyebrows internationally.
Chivo (which is El Salvadoran slang for “cool” or “hip”) was meant to usher in a new era of financial prosperity for the Central American country. Instead, it’s ushered in frustration, bugs, and a confusing new side economy in one of the most unbanked countries in the world. This move hasn’t been without opposition: there have been scattered protests against the new law in the country’s capital since it was unveiled.
Court of Accounts Launches Investigation
The country’s Court of Accounts, a judicial body that serves an oversight role in government, has been tasked with an official investigation into Chivo, the country’s crypto ATMs, and the government’s purchase of cryptocurrency. Chivo’s link to the ATMs has been under scrutiny by a human rights organization called Cristosal, which officially submitted a request to the Court of Accounts for an investigation.
Cristosal has not publicly spoken about the investigation, but reports indicate that the organization is troubled by the use of public resources to create Chivo. El Salvador has struggled in the past with government officials acting in a corrupt manner, using public funds to line their own pockets, and disguising their activities as being for the greater good.
Some activists in the country fear that Bukele’s decision to make Bitcoin legal tender and to accept Bitcoin from citizens in exchange for cash could be a roundabout attempt to distance the country from the US dollar. Dollarization in El Salvador was extremely popular when it was implemented, as the US unit of currency is very stable and works well in international exchanges.
While Bukele’s government has not publicly addressed the Court of Accounts investigation, the entire situation casts a shadow of doubt over the government’s Bitcoin experiment. Should the Court of Accounts find evidence of wrongdoing, it is empowered to present its findings to the country’s Attorney General and can recommend the implementation of criminal charges.
El Salvador’s Credit Rating
Bukele’s government faces scrutiny from forces outside of the country, too. S&P Global, a global credit rating organization, downgraded the country’s credit rating in response to the Bitcoin situation. S&P stated that the situation created too many complexities for the country to be considered a sound investment for loans and similar credit-based applications.
Among the threats posed to the country’s economy by Bitcoin are the specter of the coin’s value tanking, the complexities of currency mismatches from the country’s three forms of legal tender and the country’s bad relationship with the IMF following the implementation of the Bitcoin law. In light of all of this, S&P Global downgraded El Salvador’s credit to a B- rating, meaning that the Central American country will likely find it harder to secure international financial assistance.
Should Bitcoin’s value nosedive, it could cause a serious issue for the country’s economy. And, in light of its newly-lowered credit rating, such a situation could be extremely difficult to remedy. Bukele seems unconcerned, however, and has issued no public statement regarding the credit rating. The popular president is convinced that Bitcoin will secure a bright financial future for the country.
Crypto enthusiasts, meanwhile, are rooting for El Salvador. Should the Bitcoin experiment in the country pan out as a successful gambit, enthusiasts hope, other countries might adopt Bitcoin as legal tender. Even now, Ukraine, Argentina, Brazil, and Panama are all considering making Bitcoin a form of legal tender within their borders. For all of these countries, Bitcoin presents a tempting alternative to the US dollar as a form of de facto international currency.