Finance Minister Alejandro Zelaya said Thursday the government will allocate $120 million to establish as many as 4 million starter Bitcoin accounts, or “wallets,” though he doesn’t think that many people will take up the offer. The wallets are to be known as “Chivo,” a slang word meaning “cool,” or nice.
President Nayib Bukele said that when the law takes effect in September, accepting Bitcoin will be optional.
“Nobody will have to accept bitcoins if they don’t want to,” Bukele said.
El Salvador’s Legislative Assembly approved legislation on June 9 making Bitcoin legal tender in the country, the first nation to do so.
Zelaya said the $120 million for the accounts will come out of the government’s general fund. “Upon registering, the person will receive $30 dollars in Bitcoins” to promote the scheme, Zelaya said.
“We hope to reach a maximum of 4 million wallets, that means covering $120 million, but I don’t think we will reach that amount,” he said.
El Savador’s national debt is already reaching troubling proportions.
The company that has run a Bitcoin ATM in the Salvadoran beach town of El Zonte for about a year announced it was installing a second machine in the capital and plans to put in at least a dozen others at shopping malls. The machines give dollars in exchange for Bitcoin or takes dollars and gives credit in Bitcoin.
The digital currency can be used in E Salvador in any transaction and any business will have to accept payment in Bitcoin, with the exception of those lacking the technology to do so. The U.S. dollar will also continue to be El Salvador’s currency and no one will be forced to pay in Bitcoin, according to the legislation.
The exchange rate between the two currencies will be established by the market and all prices will be able to be expressed in Bitcoin — though for accounting purposes, the dollar will continue to be the currency of reference.
The government will promote training for people to be able to carry out transactions using Bitcoin.
The Economy Ministry has said that 70% of Salvadorans do not have access to traditional financial services and it said the country “needs to authorize the circulation of a digital currency who value exclusively follows free market criteria” to stimulate growth.
The president said it would increase financial inclusion, investment, tourism, innovation and economic development.
The legislation established a government trust fund to guarantee automatic convertibility to dollars.
El Salvador received some $6 billion in remittances from Salvadorans living abroad last year, about 16% of the country’s gross domestic product. Bukele has said Bitcoin could eliminate the costs of sending that money home.
Experts say it is unclear how the highly volatile cryptocurrency will be a good option for the unbanked and only time will tell if the new system translates into real investment in El Salvador.
Mexico’s central bank on Monday swatted down the cryptocurrency enthusiasm expressed over the weekend by one of the country’s leading bankers.
Ricardo Salinas Pliego, a magnate with large operations in retail, banking and television who has been seen as President Andrés Manuel López Obrador’s closest business ally, wrote in his social media accounts Sunday that Bitcoin is a good investment. He said his Banco Azteca was working on ways to allow the public to buy the cryptocurrency.
“Bitcoin is a good way to diversify your investment portfolio and I think every investor should study cryptocurrencies and their future,” Salinas Pliego wrote. “At Banco Azteca, we are working to bring them to our customers and continue promoting freedom.”
But Mexico’s central bank issued a public warning Monday, saying banks in Mexico are not allowed to conduct transactions with cryptocurrencies. It cited the volatility of cryptocurrencies and the fact they are not backed by any government.
“This country’s financial institutions are not authorized to conduct or offer to the public transactions with virtual assets like Bitcoin,” the Bank of Mexico said in a statement.
“Whoever issues or offers such instruments will be held responsible for violating those rules and will be subject to the applicable sanctions,” it said.
The central bank has autonomy from government control and has differed with López Obrador in the past.
It was a rare rebuke for Salinas Pliego, whose bank was given a contract to handle cash-transfer cards for government anti-poverty programs by López Obrador’s government. The president also designated Esteban Moctezuma, who once ran Salinas Pliego’s charitable foundation, as Mexico’s ambassador to the United States.
Analaysts said Salinas Pliego was the main beneficiary of a bill submitted in 2020 by López Obrador’s Morena party to make the central bank buy up U.S. dollars that private banks can’t get rid of. Salinas Pliego’s bank reportedly has the biggest problem with holdings of too much U.S. cash due to heightened sensitivity about money laundering. The bill was quashed after central bank officials objected to it.
Salinas Pliego’s enthusiasm for cryptocurrencies may stem from his frustration over his bank’s problems with U.S. dollars. In the same message, he included a graphic apparently referring to inflation, which states: “The dollar has silently stolen your purchasing power since 1913. Buy Bitcoin!”