Many experts share those views. Economist Ricardo Castañeda, from the Central American Institute for Fiscal Studies, a think tank, describes the adoption of Bitcoin as “an experiment with no prior technical study” and a “leap in the dark with many risks.”
“Betting the well-being of the public in this virtual casino means that if everything goes well, the president wins, but if everything goes badly, it will be the citizens who lose,” he told The Telegraph.
Nevertheless, El Salvador is now spearheading an international trend. This week, Ukraine joined Germany, Panama and, surprisingly perhaps, Cuba, in establishing regulations around the use of cryptocurrencies.
The US is investigating a digital dollar, and the Bank of England has said it is exploring what its own digital currency should look like.
Yet the Central American nation is, so far, the only one to actually make them compulsory rather than simply seeking to protect users. As such, it will be the focus of attention for economists, cryptocurrency advocates and possibly even central bankers in the coming months as they seek to understand the benefits and pitfalls of the unprecedented shift.
Along with no commissions, Bukele claims the advantages of using Bitcoin could include bringing more El Salvadorans into the formal economy and attracting badly-needed foreign investment, despite the public disapproval of the World Bank, which refused to help the country implement its plan. Bitcoin transactions would also not be subject to capital gains tax.
Nevertheless, there are numerous downsides, especially the risk of Bitcoin — designed to allow users anonymity — being used to launder the proceeds of the drug trade and high-level political corruption in a country with weak financial oversight.
Special cash machines rolled out
The criticism has been fuelled further by the rushed rollout, including the inauguration of special cash machines across the country, guarded by the police, and an app known as the “Chivo Wallet.”
Chivo means billy goat in Spanish but is also El Salvadoran slang for “cool.” The digital wallet collapsed repeatedly this week, prompting Bukele at one point to tweet to his nearly three million followers that, if they received an error message, they should sign out and back in. He was promptly labeled ‘IT guy-in-chief’.
In theory, businesses will be forced to accept Bitcoins. Yet El Salvador will continue to use the US dollar, which the country adopted in 2001 to address chronic economic instability, leading to confusion over just how compulsory the cryptocurrency will actually be.
Meanwhile, business owners complain they have been given minimal information about the practicalities of adopting this perplexing new currency. Flores says he received a single, brief government email on Wednesday inviting him to an online course early the following day.