Premium distrust in Bukele’s plan to boost remittances with bitcoin

Washington, Jul 19 (VOA) – When there are seven weeks left for bitcoin to enter the Salvadoran economy as legal tender after being approved by the Salvadoran government – without technical discussion or participation by the different sectors of the country – the government is betting for convincing that it is an innovative strategy “to boost the economy and attract investment.”

However, detractors and defenders of the law approved in the early morning of June 9 by the Legislative Assembly, obedient to President Nayib Bukele, have doubts about the topics of the legislation that comes into effect on September 7.

Gratuity in sending remittances, as justified by the Salvadoran government to gain adherents abroad to this economic bet that has generated great uncertainty inside and outside the country thanks to technical information compiled after the approval of the law, which reveals other edges to the problem how to drag remittances to that basket.

Manuel Orozco, an expert in remittances and development and director of the Center for Migration and Economic Stabilization of Creative International, in Washington, comments to the Voice of America that wanting to relate as taking advantage of the law to send “free” remittances is nothing more than a media illusion to justify an unconsulted measure.

Well, technical data from the World Bank and other agencies like the one he directs have for a long time monitored remittances; costs, effectiveness, means of sending and impact on the populations that receive these transfers, and they prove that bitcoin would not be free, even going that way would increase the costs of sending and converting to dollars.

Also a recent study entitled “Bitcoin, Bukele’s clumsiness”, led by economist Steve H. Hanke, and his team of students and researchers from Johns Hopkins University, in Baltimore, Maryland, exposes with comparative data the real cost that it would entail. send remittances through bitcoin and not by current market operators.

“The president has stated that bitcoin is a cheaper method of sending and receiving remittances than the methods currently used to transfer dollars to El Salvador. We examined the president’s claim and concluded that it is false, ”the study states.

El Salvador has one of the lowest rates for sending remittances from the United States, not only in Latin America but worldwide, because the cash does not lose value and is subject to a single payment that covers transfer costs, commission, insurance and coverage in international currency transactions.

Manuel Orozco considers that the Salvadoran government would be using bitcoin monetization as one more credit card to face its hefty debt of 89.4% of the country’s Gross Domestic Product (GDP), according to the Central American Institute for Fiscal Studies (ICEFI ).

“It is clear,” says Orozco, “that the government wants to hook the sending of remittances to cryptocurrency because the volume of transfers sent by Salvadorans from the United States is significantly high, and continues to grow every year to the point of being 30% of GDP. from the country”.

Only in the first four months of this year, El Salvador had received 2,350 million dollars in remittances with a growth of 47% compared to 2020, a year that maintained the sustained growth trend.

“In relation to remittances there is great uncertainty on the part of the consumer about what it means to send via bitcoin, second and more important is that the remittance market has functioned efficiently with a fairly large level of competition with more than 15 companies offering transfers in dollars at one of the lowest cost in the world ”, Orozco told VOA.

It also explains that when the cryptocurrency law comes into effect, it will impact fiscal policy, monetary policy with the exchange rate and also in the macroeconomic order. “Adopting an additional currency at this point is like diversifying their dependency, like when a person gets a second credit card to offset the debt they already have on the first, that’s basically what the fiscal aspect brings,” says Orozco.

Others go further in their criticism of the Salvadoran government such as Professor Hanke of the Johns Hopkins University School of Economics. The expert considers that the same law signed by Nayib Bukele, which he defended days later on a long radio and television channel “as simple and not at all complex,” shows that it is drawn up by economics apprentices.

He explains how during a meeting of “cryptocurrency evangelists” in Miami, Florida, it was announced that El Salvador would adopt bitcoin as legal tender and that in a matter of hours the bill entered the legislative plenary session.

“If you read the law, it is clear that it has been written by ‘amateurs’ who do not know anything about currencies and finances. Bitcoin is not a currency and they made it a legal tender. It is another blunder; bitcoin is a highly speculative good, it does not qualify as a currency, ”says the study from the academic center in Baltimore.

And Orozco emphasizes that the Salvadoran government could be betting on reducing the fiscal deficit that it already has – due to the spending in dollars that it has to face to pay its debt – and that with bitcoin it would solve it under the precept that a robust mass of consumers between they the thousands of Salvadorans who send remittances would put their trust in the cryptocurrency.

“However, the level of confidence in another parallel currency is quite low,” he says.

Public opinion still reluctant

The high levels of confidence of Salvadorans in the management of President Bukele would begin to be put to the test with this law that despite the enormous sum of state resources to promote it -through advertising campaigns- still fails to penetrate the collective conscience .

The economist Carlos Acevedo, former president of the Central Reserve Bank (BCR) during the first administration of the FMLN government, comments on the Voice of America that the long radio and television channel that Bukele broadcast, given the uncertainty generated by the approval of the law, at least it lowered a bit, clearing up some troubling concepts.

Among these, the mandatory use and acceptance of bitcoin for any commercial transaction according to one of the articles of the concise law, which as an expert led him to assess that the government bet could drag the entire economy and financial sector of the country.

However, Acevedo points out, the president’s word is still being tested as long as the content of the document that would be regulating the legislation and that they would be preparing in the BCR is not known, which must be published before the entry into force on September 7 .

And as for remittances, Acevedo adds that the government seems to be betting that the hundreds of thousands of Salvadorans who send remittances from the United States connect to the network; pay, buy bitcoins and send them to their relatives also connected in the “Chivo” network promoted by the government that has said that it will subsidize with an initial bonus of 30 dollars per person in El Salvador and create a trust of 100 million dollars of the state to offset the ups and downs of the cryptocurrency.

But even so, there are still the expenses that they will have to assume for the payment of commissions to change their dollars earned in the United States and convert them to bitcoins so that later their family in El Salvador also has to convert them again to dollars to make routine purchases of the basic basket and other services on which remittances are spent, explains Acevedo.

The economist also puts on the table the topic that the government does not explain to the population that bitcoin is acquired by speculators who bet surplus capital to buy the cryptocurrency under the precept that it will rise in value.

“The Salvadoran government does not quite understand the difference between bitcoin or cryptocurrencies as high-risk speculative assets and their function as legal tender, which due to their volatility and anonymity make them not very useful as legal tender. ”Acevedo points out.

The first opinion study on the subject was published this week by the Francisco Gavidia University and indicates that among Salvadorans mistrust and ignorance about bitcoin prevail; many are wary of seeing their income such as wages and dollar remittances being converted to bitcoins.

The sample taken among 1,233 Salvadorans from different sectors at the national level reflects that 95% of those consulted consider that the dollar is the most stable currency for their family economy. And 64.8% are not willing to receive their income as salaries or remittances in bitcoins, only 16% would be willing to migrate to cryptocurrency.

The opinion study also reflected that there is a deep ignorance among Salvadorans about the exchange value of bitcoin; 48% said they barely have basic knowledge; and only 4.6% said they know a lot about the new currency adopted by their government.

Another relevant point of the survey is the valuation that Salvadorans give to the president’s criteria when imposing bitcoin in the country, 52.1% said that they trust the president, but do not agree with the implementation of the new currency; 30% said they do not trust the president or his policies and 15.5% said they trust Bukele as well as cryptocurrency.

Among Salvadorans abroad, mistrust and uncertainty about the new monetary policy also prevail, and doubts persist about how it would be implemented and whether the Salvadoran government would make it difficult to send remittances through traditional means to promote its new economic policy.

The Salvadoran immigrant Marta Cartagena who works in a Salvadoran restaurant in the Washington area confesses to the Voice of America that her monthly shipments are for expenses and that her mother would not be in a position to be making transfers, because the dollars that she deposits from the Washington area arrive at the time of transfer without any barter and their mother has these for daily expenses.



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