Bitcoin (BTC) path to becoming legal tender in El Salvador cleared another hurdle, with parliament approving a bill to launch a USD 150m adoption fund – but government critics continue to voice their discontent.
The fund’s approval by the National Assembly was never in doubt due to the size of the President Nayib Bukele’s Neuvas Ideas party majority (56 out of 84 seats). The fund will allow the government to provide support for BTC-USD transactions, with the money being managed by the Development Bank of El Salvador (Bandesal). Bukele is aware that many merchants are likely to seek to convert BTC payments into fiat, particularly in the early stages of his plan.
A further USD 30m worth of loans has been earmarked for a project that will see the government offer users of its new Chivo bitcoin wallet and exchange platform a USD 30 golden hello bonus – in BTC.
And the government will also spend USD 23.3m on new outlets that will house crypto ATMs.
Per the newspaper El Diario de Hoy’s ElSalvador.com website, the Economy Minister, María Luisa Hayém Brevé, stated that the treasury could yet increase the size of the USD 150m fund.
The minister added:
“We have several teams in the country to show the population how to use the Chivo wallet. We have developed a user-friendly application so that all Salvadorans can learn to use this cryptocurrency.”
But resistance to crypto adoption continues. The same newspaper quoted a number of opposition MPs as speaking out about the bill and the adoption plans in general.
MPs from the two major opposition parties, FMLN and ARENA, spoke out in the house in the debate preceding the vote.
ARENA’s René Portillo Cuadra criticized the government for paying for adoption through a series of loans that he complained would ultimately need to be paid by the taxpayer.
“There is something fishy about this bitcoin business. Someone will gain from it, but it is not the people, namely those who own businesses. Time will prove us right.”
Anabel Belloso, an FMLN MP who co-launched an unsuccessful bid to derail the bitcoin bill in early summer, called the fund a “link in one of the most irresponsible decisions that this Assembly has ever made.”
Belloso claimed that only a select “few” would benefit from the move, and that the adoption plan would see “inequality” escalate in the country.
Most parliamentarians dismissed a protest (still ongoing) by an apparently small number of “elderly” citizens opposed to the idea of receiving their pensions in BTC (an idea the government has dismissed) as a matter for “a small group of individuals” outside the National Assembly building.
But Portillo Cuadra claimed that opposition to adoption did not compose of disgruntled “old people on the corner [of the road leading up to the building],” but was actually a sentiment shared by “more than 6 million Salvadorans.”
Other MPs warned that the fact that Cuba was also turning to crypto was a warning signal, adding that El Salvador should not be pursuing the same kind of policies as an economic pariah like Cuba.
Some are worried, however, that the adoption plan could lead to financial exclusion. El Salvador is dependent on International Monetary Fund (IMF) backing, and is hopeful of securing a new loan in the coming weeks. But per the International Financial Review, sovereign bonds have been in freefall since early June, when Bukele made his first BTC adoption decision.
The BTC adoption announcement has “fuelled concerns that it could jeopardize a deal with the IMF,” it wrote.
The media outlet quoted Siobhan Morden, the head of Latin America fixed-income strategy at Amherst Pierpont Securities, as stating:
“The distressed yields suggest restricted market access with re-entry only possible at lower levels under a formal IMF program.”
As reported, in August, ratings agency Fitch Ratings warned against the potential negative consequences of El Salvador adopting BTC to its financial institutions and insurance sector. The country would have to either hold BTC and be exposed to day-to-day volatility, or sell any incoming BTC immediately to the market, which would incur other costs, per the agency.
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– IMF Says Making Bitcoin a National Currency is an ‘Inadvisable Shortcut’
– How International Fiat Fund Hurts Cash-Strapped Countries (FYI, El Salvador)
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