To date, only 20% of Salvadorans continue to use the “Chivo” wallet, which allows payment with the queen of cryptocurrencies.
One year after the adoption of bitcoin as legal tender in El Salvador – September 7, 2021 to be exact – it’s time to take stock. To date, companies have the obligation to accept bitcoin as a means of payment except in the event of “technical problems”. In this country, where 65% of the population is unbankedthe record in terms of adoption remains mixed, for example with regard to the “Chivo” wallet launched by the government and which allows payment in bitcoin.
“The success is there, since the number of people who have downloaded Chivo is higher than that of people with a bank account”, underlines nevertheless the analyst Marion Labouré in a study published Tuesday by Deutsche Bank.
In January, the President of El Salvador Nayib Bukele Ortez tweeted that Chivo had almost 4 million users (out of a population of 6.5 million), or more than 60% of the population. But in fact, the reality is quite different according to a survey by the National Bureau of Economic Research (NBRE), a private American organization quoted by Deutsche Bank. The organization carried out a study with 1,800 Salvadoran households on their relationship to the queen of cryptocurrencies. According to this report, 40% of all Chivo downloads occurred in September 2021, compared to “almost none” in 2022.
Moreover, the main source of motivation to download the application was the bonus of 30 dollars offered by the government at the launch of the application, far from an adoption of bitcoin for its philosophy therefore. Moreover, while most respondents explain having spent this bonus, only 20% have since continued to use it. It must be said that the application does not have a perfect user experience, between technical problems and impersonation reported by the local population. In addition to this, there is a major problem: only 64.6% of the population has access to a mobile phone with internet, necessary to download the Chivo wallet.
Similarly, the record on the business side is mixed. To date, only 20% of companies would accept bitcoin as a means of payment, mainly large companies. “We find that only 11.4% of businesses have positive bitcoin sales,” NBRE points out. Similarly, only 5% of sales were reportedly made through the Chivo wallet, and “just as most households using Chivo prefer to keep their money in cash rather than bitcoins, 88% of businesses convert their bitcoins to dollars” .
The benefits do not “yet” exceed the costs
If the Salvadoran government therefore faces a problem of adoption on the side of households and businesses, another concern has been felt for several months: the deterioration of the country’s finances. As a rather “unwelcome” birthday present, the Fitch Rating agency recently downgraded El Salvador’s credit rating from CCC to CC2, Deustche Bank recalls. Indeed, despite the adoption of bitcoin which was intended to be a cultural, social and economic revolution, the short-term benefits thanks to bitcoin do not, according to the bank’s analysts, “not yet” exceed the short-term costs.
“In January, the IMF estimated that short-term gains amounted to 0.25% of El Salvador’s GDP, supported by tourism, rising consumption and lower remittance fees,” the Deutsche report said. Bank.
But at the same time, “according to IMF estimates, the short-term budgetary costs amount to 1% of GDP for 2021-2022”, due in particular to the known difficulties in the cryptocurrency market, which remains very volatile. Similarly, “tax debts have also been exacerbated by government purchases of bitcoins, exposing its balance sheet to significant volatility,” the report points out.