What is Really Going on with El Salvador’s Free BTC?
Image courtesy of Unsplash (Oswaldo Martinez)

What is Really Going on with El Salvador’s Free BTC?

Within the economic context, the government's move to gift $30 of BTC to everyone makes much more sense.
Neither the author, Kai Morris, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

It has recently been reported that every citizen of El Salvador will be entitled to $30 USD worth of Bitcoin when they register for the country’s official wallet, named Chivo. This is an initiative designed to entice users into downloading the wallet (which can hold both BTC and USD, the country’s other legal tender) and engage in crypto.

But is $30 truly enough to significantly increase adoption? The truth of the matter is that El Salvador’s economy is starkly different from most Western countries, and so answers to these questions are not common knowledge. This further leads us to ask what the economics and politics of the country are like, too, and how they fair into these new Bitcoin laws.

Cost of Living in El Salvador

Firstly, let’s look at what $30 will buy you in El Salvador. Data from El Salvador Info notes that, for utilities, $30 dollars will pay for one month of cooking gas, or about one month of water. It will also pay for most doctor’s appointments, as they range from $5 to $50. 

These are pretty reasonable purchases, the likes of which might be enough incentive for somebody to activate their official wallet. Especially considering how all businesses, regardless of size, must accept Bitcoin in due time, meaning that they can stretch their BTC further by also using it for groceries in local shops.

We can gain further insight by comparing this to the cost of living in the US. El Salvador is considered 34.8% cheaper than the US overall. Breaking this down, it is 27.3% cheaper for its groceries, and 57.1% cheaper for housing. However, there are a handful of areas where El Salvador is actually more expensive than the US for living, such as clothing, which is 9.5% higher, and transportation, which is 2.5% higher.  

This suggests that $30 stretches further in El Salvador than it does in the US, although, this difference is not huge. However, as this money will be in Bitcoin, that means it can surely appreciate in value. At the moment, $30 equals 0.00092 BTC, but just a few months ago when Bitcoin was at its all-time-high, 0.00092 BTC was equal to $55, which is far more incentivizing.

An additional incentive for engaging with Bitcoin is that its transaction fees are lower than international fiat transaction fees in El Salvador. This is important as many citizens within the country have family who live abroad who they oftentimes send money to. Of course, BTC’s transaction fees can still get quite high, but that could soon be reduced in future upgrades.

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What Influenced El Salvador’s Adoption of Bitcoin?

It helps to understand the political landscape that laid the groundwork for Bitcoin support within Congress. For starters, the push for BTC appears to be part of a larger initiative from President Nayib Bukele to reduce the number of unbanked individuals in the country. In March 25th, the President released his National Financial Inclusion Policy, aimed at giving more people access to bank accounts and more official means of money management.

The country’s Chiva wallet fits directly into this narrative as it can hold both BTC and USD. This is not the first time crypto has been used to bring more people into the online banking fold – earlier in the year a similar program was launched by VISA and Stellar to target underbanked people and give them greater financial tools.

El Salvador’s reasoning for choosing Bitcoin may also be tied to its reasons for adopting the US dollar all the way back in 2001. One paper notes that its aim was to “increase foreign investment” and “control inflation and interest rates” which would help with “sparking economic growth.”

Arguably, the El Salvadoran government may be hoping for the same benefits with Bitcoin, especially with regards to controlling inflation. With constant fears that the US dollar is losing its grip on inflation, they may have chosen to look elsewhere to help protect themselves against possible damage from the US Federal Reserve. 

Together, this paints a fascinating picture of El Salvador’s political and social landscape. The $30 offering to anybody who activates their wallet could be of great help to some of its citizens, as well as help reduce its unbanked population, but there are also larger factors at play such as protecting and growing the country’s economy as a whole. 

Do you think El Salvador’s adoption of Bitcoin will help its economy? Let us know in the comments!

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