El Salvador does not mandate the use of Bitcoin
In November 2021, El Salvador hosted two Bitcoin conferences and a plethora of international Bitcoiners descended on the country. Most Bitcoiners seemed bullish on El Salvador, however, some criticized the rollout as “heavy and inconsistent with Bitcoin ethics.” While it’s important to provide constructive criticism, it’s equally important to verify these claims. The implementation may be far from perfect; However, it is essential to dispel the myth that El Salvador forces its citizens to use Bitcoin.
Rules and standards
We often forget that the Salvadoran colón (₡) is legal tender and that everyone is required to receive transactions in colones. Indeed, with a fixed exchange of $1 = ₡8.75 SVC, consumers can ask for prices expressed in colones. Now does anyone do this? Of course not, but someone could, and not complying would be breaking the law. In January 2001, the USD became legal tender in El Salvador, and people started using it above the colón, and they haven’t looked back. Prices are no longer expressed in colones and no one is supposed to accept them.
The above fact highlights the importance of rules and norms in any given society. Although the rules are enforceable, people develop habits and actions around the standards. For example, in El Salvador, people live by implicit informal rules, in which settlers are no longer accepted. Although the current norm is to use USD as a store of value, medium of exchange, and unit of account, the rules require colones and bitcoin to be acceptable as well.
The Bitcoin Law
Opponents of bitcoin in El Salvador say the government has trampled on their rights and is forcing people to use bitcoin through drastic methods. Unfortunately, some Bitcoiners have bought into this narrative not supported. However, the violent application of bitcoin transactions at this point is wrong. To date, there have been no reports of businesses being persecuted for not accepting bitcoin, although citizens have reported that Pollo Campero restaurants no longer accept it. Yet critics use the Bitcoin Law to weaponize their talking points, create a FUD with the international community, and deter Salvadorans from using bitcoin.
Few people understand the Bitcoin law, which is why it is essential to highlight the critical aspects of the law in simple terms:
- The law applies to everyone.
- The free market defines the exchange between bitcoin and USD.
- All prices can be expressed in bitcoin.
- All taxes can be paid in bitcoin.
- No capital gains tax will apply to transactions that generate profits in exchange.
- For accounting purposes, the USD will be used as the base currency.
- Everyone is required to accept payment in bitcoin for products and services.
- The private sector can provide options, the state will ensure to provide the tools so that bitcoin transactions can be performed in an automatic and instantaneous conversion between bitcoin and USD if the user wishes. The State will promote the education and tools necessary for the population to access bitcoin transactions.
- The regulations and operations on how automatic and instant bitcoin to USD conversion options provided by the state will be specified later.
- The executive power will create the institutional structure for the implementation of the law.
- The Central Bank of El Salvador and the Superintendency of the Financial System will establish guidelines within the timeframe corresponding to the implementation of the law.
- Are excluded from article 7 those who, by a notable and obvious fact, do not have access to technologies to carry out transactions in bitcoin. The State will promote the training and mechanisms necessary for the population to access bitcoin transactions.
- Before this law, all valid agreements expressed in USD can be paid in bitcoin.
- To meet the obligation of Article 8, the State will create an escrow through the Salvadoran Development Bank to ensure the automatic and instantaneous conversion of bitcoin into USD.
- This law cancels and replaces any previous law that would be in contradiction.
- This law will become official 90 days after its publication in the official press.
Anti-Bitcoin activists oppose Article 7 because they believe it forces individuals and businesses to transact in bitcoin, which is not true. After all, Article 12 exempts people from unjust persecution. What is more important than focusing on unlikely scenarios is acknowledging the considerations for propelling bitcoin into legal tender:
- Under the constitution, the government is required to create laws for the benefit and enrichment of all Salvadorans.
- Because 70% of the population is unbanked, the government must facilitate financial inclusiveness to improve access to their rights.
- The law aims to create economic growth and opportunity through free markets to enrich all Salvadorans.
Unsubstantiated criticism of Bitcoiner
In a recent op-ed, Bitcoiner and author Anita Posch jokingly states whether El Salvador is “the first country in the world to make bitcoin legal tender, or the first country in the world to force its businesses to use bitcoin”, which is a false dichotomy. El Salvador provided the legal framework for the adoption of a legal tender currency and could not ignore the basic exchange protocols.
Companies already adhere to various requirements such as a bank account, permits, licenses, insurance, etc. Accepting bitcoin is a requirement that prepares businesses for the future and an expected increase in tourism. The government does not require businesses to use their Chivo app, and with the known challenges with Chivo PoS, merchants can choose any POS option like PaySea, Open Node, IBEX Mercado, and BTCPay Server. Most of these options offer instant automatic conversion to USD.
Although Chivo had issues, it was an onboarding tool that facilitated the fair distribution of the $30 sign-up incentive to those who chose to use Chivo. And given that some critics aren’t fans of the airdrop approach, the Salvadoran government was going to be Damned if they did, damned if they didn’t in the distribution of funds to the population. Salvadorans are neither obligated nor constrained to use Chivo. The bet is that people will educate themselves and eventually switch to non-custodial bitcoin and lightning wallets. And it’s a solid bet.
In a series of tweets, Bitcoin Beach’s Michael Peterson suggests that we need proof that the government’s intentions are nefarious and that the Chivo developers are altcoiners using non-Bitcoin rails; otherwise, the claims are just rumors. And while rumors can make a juicy story, it’s against Bitcoin’s ethics to don’t trust, verify. To date, Peterson has offered a bounty of 10 million sats to anyone who can validate the Chivo developer rumors, but no one has provided credible information.
When reviews say that Salvadorans weren’t asking for bitcoin, they’re right. Not all Salvadorans use bitcoin as a standard. Yet bitcoin is a means to an end: improving their quality of life and being economically independent from other governments. The adoption process will be gradual and cannot succeed if it is imposed on the population. El Salvador has provided Bitcoin with a home and a framework to make it the financial capital of the future. Many critics would like to see adoption fail, but it is up to Salvadorans, not bitcoin influencers or even the government, that bitcoin adoption in El Salvador goes from experiment to success.
This is a guest post by Jamie Garcia. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.