Since El Salvador adopted Bitcoin (BTC) as legal tender in September 2021, there have been a number of quick judgments issued declaring this move a failure, with some pundits going as far as to suggest that Bitcoin is somehow responsible for the economic challenges that existed in El Salvador well before Bitcoin was even created. But the traditional financial experts, talking heads and even representatives from the International Monetary Fund (IMF) espousing this point of view are missing the point entirely.
After Salvadoran President Nayib Bukele announced his plan in July to offer to repurchase publicly held bonds maturing between 2023 and 2025, El Salvador’s sovereign debt totaled more than $20 billion. Admittedly a massive amount relative to the Salvadoran economy, it was unrelated to the decision to accept Bitcoin as legal tender.
Rather, myriad factors play into El Salvador’s debt. In 1982, 39 years before the legalization of Bitcoin, El Salvador borrowed $85 million from the IMF, adding extensive fiscal debt and providing negligible benefits to its citizens during a time of civil war. After that, the country’s 2001 decision to make the United States dollar its official currency further limited its ability to manage its own finances. With USD as its base currency, El Salvador was unable to implement its own monetary policy to pay for domestic costs like social programs or infrastructure. Instead, it was forced to increase public sector borrowing to pay for these vital programs.
El Salvador’s debt-related challenges are not a result of the country’s investment in new financial technologies, like Bitcoin. Instead, El Salvador’s adoption of Bitcoin is a move toward regaining its monetary sovereignty, providing its citizens with access to financial services and opportunities, and addressing the kinds of systemic problems that have historically disenfranchised Salvadorans.
Since making Bitcoin legal tender last year, El Salvador has spent a little more than $100 million on Bitcoin. The new law stipulated that all businesses in the country would accept Bitcoin as payment. Around the same time, the government also created a trust with $150 million dollars in public funds to facilitate dollar conversions and launched its digital wallet “Chivo Wallet,” granting $30 in Bitcoin to citizens who download it.
Related: Falling Bitcoin price doesn’t affect El Salvador: ‘Now it’s time to buy more’
By legalizing Bitcoin as legal tender, setting up wallets for its citizens, and incentivizing their use of these new tools with Bitcoin bonuses, the government has taken significant steps toward giving citizens more financial freedom and opportunities than they have ever had before. For example, at the time this legislation was passed, estimates suggested as many as 70% of the country’s citizens lacked bank accounts. The Bitcoin experiment is uplifting these citizens by providing them a way to join the formal economy and creating opportunities for them to grow wealth.
While the timing of El Salvador’s commitment to Bitcoin as legal tender has unfortunately overlapped substantially with an industry-wide bear market, the rush to deem this a failure is premature, to say the least. To judge the experiment’s success, it is crucial to consider its purpose and to give the experiment proper time to run its course.
At its core, El Salvador undertook the Bitcoin endeavor to usher in a new era of monetary sovereignty in the nation and to provide citizens with financial opportunities they did not have in the past and likely would not have in the future. As a direct result of this effort, through the use of blockchain technology, millions of unbanked Salvadorans now have access to financial services and global financial markets.
Related: Tourists flock to El Salvador despite Bitcoin bear market
While others stand meekly aside waiting to see what happens, El Salvador has stepped up as a leader in this movement that will likely spread to numerous other nations across the globe. Countries including Venezuela and Guatemala — as well as many others — may soon follow the path that has been forged by El Salvador, seeking progressive financial solutions built on blockchain technology to empower citizens and facilitate new eras of economic growth and independence.
Contrary to claims by critics who correlate El Salvador’s economic troubles with the adoption of Bitcoin, the adoption is a response to the intractable challenges that El Salvador and countries like it currently face, not the cause. The government of El Salvador has made a brave and laudable move to give its citizens and, indeed, itself a chance at economic freedom. As citizens find success with the financial tools that have been put in their hands, other countries will follow their ambition to step forward into the next generation of finance.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.