El Salvador Weekly: Bitcoin Remittances Aren’t Happening

The government-issued Chivo digital wallet was supposed to be a way to encourage Salvadorans to adopt bitcoin after the government of President Nayib Bukele made the cryptocurrency legal tender.

It never caught on with the public, and the number of merchants that accept bitcoin — which they are legally required to do — is minimal and falling, ElSalvador.com reported on June 20.

“Now I no longer receive payments in Bitcoin, what’s more, people don’t even ask about it anymore, the truth is it’s not profitable,” said Milton Alexander, owner of Foto Flores in Plaza Libertad in San Salvador.

Customers didn’t use it after spending the $30 bitcoin reward they got for opening a Chivo wallet, he added. “People wanted to spend what the government had given them, we received the money and converted it into dollars.”

Mónica Díaz, a clerk at an electronics store in San Salvador’s central business district said that in 2022, “we have received one or two payments a month like this, but hardly anyone uses the Chivo Wallet anymore.”

Remittances were perhaps the strongest use case for the government’s Chivo digital wallet, as the transaction fees are far lower than through traditional channels.

And yet the amount of dollars sent to El Salvador through May of this year rose almost $118 million compared to the same period a year ago, the country’s central bank revealed this week. That amounted to $3.15 billion, and represented a 3.9% increase, news outlet ElSalvador.com reported.

But less than half of that increase — $52 million — came via Chivo transactions. The central bank did not specify how much of that was sent as bitcoin and how much as dollars.

However, that amounted to 1.65% of the total remittances sent. And given that the digital wallet did not add any new members to the Salvadoran labor pool in the U.S., it seems very unlikely that it added to the economy other than via the much-lower transaction fees.

A Salvadoran Crypto?

Both Diario El Salvador and ElSalvador.com reported last week that the Bukele administration is planning to launch a national cryptocurrency. Sort of.

While Mónica Taher, the administration’s director of technological and economic affairs, said the Salvadoran Crypto Initiative (SCI) token’s profits would go to five state institutions: The Ministry of Education, Ministry of Health, Ministry of Culture, Ministry of Housing and the National Sports Institute.

Digging down, it is issued by “a Canadian company called Astro Babies, which opened a virtual casino last week in the country,” ElSalvador.com said. Which translates to: They promise they’ll give the government 30% of the profits. The “national cryptocurrency” part came from the developers, the article added.

Hair of the Dog

The country isn’t anywhere close to building the Blockchain City President Bukele has promised to erect on a volcano, tapping geothermal energy. Nor is it anywhere close to launching the $1 billion “volcano bonds” intended to pay for it.

But it has opened the first thing the president promised to do with the country’s bitcoin profits — the investment is down about 70% at this point due to the collapsing price of crypto — the Chivo Pets veterinary clinic.

However, a report from the Ministry of Finance stated it was actually financed with loans the government had taken out before launching the Chivo wallet, according to La Prensa Grafica. Which contradicts what the administration said, it added.

The Minister of Finance Jose Alejandro Zelaya told a morning news show that to “make Chivo Pets and get the $4 million in profits we had to sell some coins, otherwise where would the cash flow come from?” La Prensa Grafica said.

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