According to the World Bank, remittances constitute 24.1% of the gross domestic product of El Salvador. Two and a half million Salvadorans living abroad will be able to save by sending remittances in Bitcoin.
The adoption of Bitcoin in El Salvador could displace international remittance services such as Western Union and MoneyGram. Those companies would stop getting revenue of up to USD 400 million a year.
President of El Salvador Nayib Bukele believes that Salvadorans would stop paying that amount when making international transfers in Bitcoin. In that way, they would deprive those services of that inflow of money, the CNBC television network reported.
Data from the World Bank indicate that remittances constituted 24.1% of the gross domestic product (GDP) of El Salvador in 2020.
The Central American Country received a GDP of USD 24 billion in 2020, the World Bank noted. Regarding the volume of remittances arriving in El Salvador, they would be equivalent to 24.1% of that amount. Therefore, the country would receive USD 5.78 billion in remittances annually, according to CNBC.
Transactions with Chivo Would Be Free Unlike Those with Other Bitcoin Wallets
Around 2,500,000 Salvadorans living abroad send money to their relatives and friends in El Salvador. In other words, each person would be sending USD 195 per month, equivalent to 50% of the household income. According to official data, remittance companies send about 60% of that money in cash, while banks send 38%.
However, a testimonial explains that remittance services charge high fees, for which Western Union would charge USD 3.41 for every USD 10.
The situation is different regarding Bitcoin wallets, as fees can be as low as a few pennies. The amount transferred would not influence the costs, but the congestion of the network would make them vary. The government of El Salvador said that transactions to send remittances abroad with the Chivo wallet would be free.
Protection against criminals is another factor in which remittances in Bitcoin outperform traditional services. CNBC sources said that robberies against people who withdraw remittances at the physical headquarters of Western Union are common. If Salvadoran families receive the money digitally through Bitcoin, they would also prevent someone from snatching the remittances away from them.
The Experiment of El Salvador May Boost Bitcoin
When the Bitcoin Law came into effect on September 7th, the pioneering cryptocurrency became legal tender in El Salvador. The government has been fixing some hiccups in their Chivo wallet, but it may continue to face privacy issues.
After El Salvador bought 550 BTC, Bukele thanked the International Monetary Fund (IMF) for the decrease in the price of Bitcoin. Although there were protests on the first day, the adoption of Bitcoin in El Salvador can inspire confidence in the rest of the world.
Bitcoin has become a relevant element in the world economy, which has aroused the interest of a growing number of governments. The Salvadoran initiative will serve as an example for other countries that want to adopt the pioneering cryptocurrency as legal tender.
By Alexander Salazar