Impoverished nation is defying warnings against using volatile crypto asset as official currency alongside U.S. dollar

The Federal Reserve is trying to figure out how to keep cash relevant in a cashless world. It’s considering digitizing the U.S. dollar, giving people money they can access on their phone and bypassing electronic payments that can be slow and costly for businesses. Illustration: Jacob Reynolds/WSJ

By Santiago Pérez and Caitlin OstroffAug. 26, 2021 4:34 am ETPRINTTEXT39Listen to articleLength2 minutes

In less than two weeks, El Salvador will become the first country to adopt bitcoin as a national currency. No one knows what comes next.

The government of the impoverished Central American nation aims to spend up to $75 million as part of a plan to hand out $30 to people who sign up to an e-wallet called Chivo, or “Cool.” That software-based system would allow an estimated 2.5 million Salvadorans to buy goods or pay for services in U.S. dollars or bitcoin, El Salvador’s two official currencies as of Sept 7.

The foray into bitcoin risks wrecking El Salvador’s $26 billion economy. The indebted nation’s central bank could be forced to spend hard-currency reserves to buy bitcoin if the value of the crypto asset craters and consumers rush to the safety of the dollar. The government can’t print its own money—El Salvador ditched the colón in favor of the greenback two decades ago—and is struggling to earn dollars.

“Adopting bitcoin as legal tender puts us on a roller coaster,” says Carlos Acevedo, an economist who served as governor of El Salvador’s central bank from 2009 to 2013.

President Nayib Bukele has said that adopting bitcoin will help attract foreign investment, foster more and cheaper financial services and lower the cost of sending and receiving remittances, which reached a high of almost $6 billion last year. Source El Salvador Gets Ready for a Risky Bitcoin Experiment – WSJ

By block head

Block Head is a blockchain journalist.