El Salvador Cites Benefits of Bitcoin Legalization

Adopting Bitcoin as legal tender has brought benefits to El Salvador, even as the price of the cryptocurrency falls. Bloomberg reported this, citing Finance Minister Alejandro Zelaya.

According to him, the rollout of the digital currency expanded access to financial services to a large segment of the population that had largely been left out of banking, attracted tourists and investments.

The minister acknowledged that the scale of using Bitcoin as a medium of exchange in El Salvador is realistically small. However he continues to believe in the prospects of digital gold:

“For some, this is something new that they do not fully understand. But it is a phenomenon that exists, is gaining momentum and will be with us in the coming years.”

The Salvadoran government began acquiring Bitcoin shortly before its legalisation in September 2021 using funds from a specially created fund of $150 million. The country has 2,381 BTC on its balance sheet (about $56 million). Journalists estimate that the cryptocurrency is roughly 50% below the purchase price.

In March, authorities announced the issuance of Bitcoin bonds worth $1 billion, but the issue was delayed due to worsening market conditions. In June, Zelaya acknowledged that favorable conditions for the issue have not yet materialized.

The IMF criticised El Salvador’s decision to recognise Bitcoin as legal tender. In January, the institution recommended stripping the cryptocurrency of this status. According to former central bank head Carlos Acevedo, the adoption of digital gold “killed” the relationship with the fund.

Against this background, the country is negotiating with the IMF for a $1.3 billion loan.

A study by the American National Bureau of Economic Research showed that the majority of Salvadorans prefer to use fiat money. About 60% of those who downloaded the state crypto-wallet simply received a $30 signup bonus and did not return to the app.

Nevertheless, Zelaya is convinced that digital tokens will play a significant role in the future.

“New technologies in recent years have shown how people feared things like websites and digital business, but over time reality asserted itself,” the minister said.

Zelaya added that the government has not abandoned plans to issue the announced bonds, is steadily advancing the Bitcoin City project, and will soon announce new cryptocurrency initiatives.

President Nayib Bukele urged not to worry about the fall in Bitcoin’s price and said that investments in digital gold would grow immensely after the bear market ends.

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