Remittances, or transfers of household income from abroad, constituted 25% of El Salvador's GDP in 2020. However, recipients of these funds may be charged fees of up to 30% by banks. Using bitcoin would avoid these fees, and since remittances are such a large portion of El Salvador's economy, the effect of lowering those fees would be quite high.

Slashing the cost of remittances

Financial inclusion is a huge issue in El Salvador, where at present around 70% of the population is unbanked. Adopting bitcoin would provide an easy point of entry for these individuals to enter the financial system and gain the ability to save, transfer, and invest their money.

Boosting financial inclusion

Adopting bitcoin as legal tender would reduce the government's dependence on physical dollars, which are costly to import. As a result, more public funds would be left over to dedicate to other important tasks. 

Saving public funds

- Slashing the cost of remittances
- Boosting financial inclusion
- Saving public funds

University of Minnesota - Twin Cities

On 7 September 2021, El Salvador became the first country to adopt bitcoin as legal tender, through a law passed by the Legislative Assembly.  The Central Bank drew up technical standards to determine how the initiative would function, and the government provided citizens with a digital wallet and launched an educational program to inform the public about its roll-out.

El Salvador's adoption of Bitcoin as legal tender

Gorjon, Sergio. (2021). The Role of Cryptoassets as Legal Tender: The Example of El Salvador. Banco de España. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3944765

The Role of Cryptoassets as Legal Tender: The Example of El Salvador

The transition to accepting bitcoin as legal tender took just under three months, after president Nayib Bukele unveiled the plan at the Bitcoin 2021 conference. The initiative was passed via an expedited procedure, securing a qualified majority in the Legislative Assembly. 

History of El Salvador's Bitcoin adoption

Arguments for El Salvador's Bitcoin adoption

- Brevity
- Role of US Dollar
- State-promoted alternatives
- Delegation of power

Key features of El Salvador's Bitcoin adoption

- Lack of popular support
- Exchange rate instability
- Jeopardization of government revenues
- Declining influence of monetary policy
- Financial market integrity

Criticisms of El Salvador's Bitcoin adoption

- Initial bitcoin price plunge
- Practical difficulties with the digital wallet
- Opacity and lack of consensus

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