El Salvador adopts Bitcoin as legal tender

"Buying the dip" or, in French, "Achète la decline".

These few words tweeted this Tuesday by its president - Nayib Bukele - are enough to sum up El Salvador's new monetary policy.

A policy put to the test from its first day on Tuesday: becoming the official currency alongside the dollar, Bitcoin briefly collapsed ... pushing the government to buy more.

While it tends to be banned in some countries, and others do not know what to do with it, El Salvador is the first in the world to make Bitcoin legal tender. Bitcoin will notably allow Salvadorans to save $ 400 million in bank charges when sending money by the diaspora, notably installed in the United States, according to the head of state and his government. Reducing these fees is no small feat for El Salvador, as they represent 22% of the country's GDP. The stake is twofold: to use cryptocurrency and its reduced costs by bypassing banking services and to put this money back into the local economy.

However, its implementation did not go as planned, apart from the drop of almost 20% in the price of Bitcoin during the day. “@Chivowallet is not working, we have taken it offline while we are increasing the capacity of the servers,” Nayib Bukele wrote on Twitter at the start of the day, referring to the mobile app needed to perform day-to-day transactions . To encourage Salvadorians to use it, anyone who registers for it receives 30 dollars in Bitcoin as a welcome gift, ready to be used ...

For unos momentos no funcionará @chivowallet, la hemos desconectado mientras aumentamos la capacidad de los servidores de captación de images.

Los problemas de instalación que tuvieron algunas personas fueron por esa razón.

Preferimos corregirlo antes de volver a conectarla.

- Nayib Bukele 🇸🇻 (@nayibbukele) September 7, 2021

The Salvadoran parliament passed the law in June stipulating that the value of Bitcoin "will be established freely by the market" and obliging all businesses to "accept Bitcoin as a means of payment".

However, the government leaves the possibility during a transaction with the Chivo electronic wallet to immediately convert the amount into its equivalent in dollars, in order to avoid a possible sale at a loss (in the event of a fall in Bitcoin for example).

Criticized volatility

Economists, but also the World Bank, the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB) have expressed their skepticism. This measure will "have a negative impact" on the living conditions of Salvadorans due to "the high volatility of the exchange rate" of Bitcoin, and will have an impact "on the prices of goods and services", according to the University of El Salvador. Oscar Cabrera, interviewed by AFP.

Cryptocurrencies including Bitcoin are criticized for their high volatility.

Based on blockchain technologies, they only depend on supply and demand.

Over the past year, the price of a Bitcoin has gone from less than 10,000 euros to more than 53,000 euros in April and has been around 45,000 euros in recent days ... until it has dropped to just over 35 000 euros in a few hours on Tuesday.

It appears the discount is ending 🥲

Thanks for the dip @IMFNews.

We saved a million in printed paper.

El Salvador now holds 550 bitcoin. # BitcoinDay #BTC 🇸🇻

- Nayib Bukele 🇸🇻 (@nayibbukele) September 7, 2021

The pirouette did not give the President of El Salvador any cold sweat, on the contrary. Nayib Bukele announced on Twitter that the government had taken the opportunity to buy back 150 additional Bitcoins, the National Bank now having 550 Bitcoins in its coffers (more than 21 million euros, according to the price of this Tuesday 6 p.m.). “It looks like the promotion is over,” he posted on Twitter, as the price of Bitcoin trended higher again. And the leader to support: “We saved a million in printed paper. "