El Salvador, a small Central American state, was the first country in the world to adopt bitcoin as its legal currency, alongside the dollar, in September 2021. A few months later, the results are mixed: despite the government's best efforts, bitcoin has failed to take hold. It remains little used by the population, which remains unconvinced.
Several incentives
A recent study by 3 researchers from the US National Bureau of Economic Research, Diana Van Patten, Fernando E. Alvarez and David Argente, provides an initial assessment of bitcoin usage in El Salvador, 9 months after its adoption as the country's second legal tender.
The survey, carried out among Salvadoran business leaders and households, reveals that bitcoin remains little used and has failed to gain ground against the dollar, El Salvador's primary legal tender.
And yet, the government has stepped up its efforts to encourage the use of bitcoin, in the belief that this crypto-currency can meet a number of challenges, including improving access to the banking system, increasing independence from the US dollar, simplifying fund transfers and attracting foreign investors.
To encourage Salvadorans to pay for their purchases in bitcoin, the government has developed the Chivo application, a digital wallet offering the sum of 30 dollars in bitcoin to anyone who decides to download it.
Bitcoin use remains marginal
Although 60% of Salvadorans have downloaded Chivo, the apparent success of the application needs to be qualified. Indeed, the financial incentive was decisive for three quarters of those who downloaded the app: without the modest sum involved, they wouldn't have taken the plunge. A 6% discount on petrol was also offered to those who paid in bitcoin via Chivo.
Once these benefits have been consumed, only 40% of Salvadorans continue to use Chivo. But this use remains low-intensity: over a period of one month, the median user does not receive or make any payments, according to the study by American researchers.
The app was mostly downloaded in September 2021, with very few new users since the beginning of the year.
20% of Salvadoran businesses accept payment in bitcoin; of these, only 11% have seen their sales increase thanks to this cryptocurrency. Payment in bitcoin accounts for only 5% of the sales of companies accepting this type of payment. Once bitcoin payments have been received, 9 out of 10 companies exchange them for dollars, to reduce the risks associated with cryptocurrency volatility.
It has to be said that the fall in the price of bitcoin, which has lost 44% since last November, is hardly reassuring for Salvadorans, whether households or businesses.
Nor is bitcoin attractive for remittances from abroad, which still accounted for almost 24% of El Salvador's GDP in 2020. As of February 2022, 1.6% of remittances from abroad were in bitcoin, the lowest level since the country adopted bitcoin as its legal tender.
The National Bureau of Economic Research study "Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador".