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"Central banks in more than 100 countries around the world are considering adopting digital currencies to increase financial inclusion and the efficiency of payments for their populations; some countries—including the Bahamas, Jamaica, and Nigeria—have already launched such currencies.
El Salvador took a different path toward digital payments. In 2021, in order to promote financial inclusion and job creation and facilitate remittances, it became the first country to adopt Bitcoin as a legal tender. At the same time, the country launched Chivo Wallet, an app that offers many of the same benefits as a central bank digital currency (CBDC), including accessibility and the ability to pay peers and firms and make deposits and withdrawals both in U.S. dollars (the country’s official currency) and in Bitcoin. But Bitcoin, of course, is different than a CBDC in many ways—not least of which is that its value is not backed by a central bank.
Because of the interest in digital payment systems around the world, El Salvador’s experience could be informative. But the country has been tight-lipped about its experience, much to the chagrin of the International Monetary Fund. ...
a survey to get more information directly from people in El Salvador and have written a new paper, published in Science magazine, that analyzes Salvadorans’ use of Bitcoin and Chivo Wallet.
They find that neither Bitcoin nor the app are getting much use, despite a battery of incentives put in place, an indication that governments may face an uphill battle in convincing their citizens to adopt new payment technologies in a way that furthers financial efficiency and inclusion. ..."
From the editor's summary and abstract:
"Editor’s summary
After El Salvador adopted the cryptocurrency bitcoin as legal tender, its government incentivized it with the Chivo Wallet app, a digital wallet backed by their central banking system. Despite major incentives, bitcoin was rarely adopted except among one privileged group: young, educated men with bank accounts. Compared with traditional banks, bitcoin offers improved privacy and transparency and rapid, inexpensive transactions. These are all features that economists assumed were desirable for Salvadorans because most are unbanked, need remittances, and can access Chivo Wallet because they usually own phones with Internet. However, Alvarez et al. found that Salvadorans’ preference for tangible cash and, ironically, privacy and transparency fears impeded bitcoin adoption. Unless populations are financially literate and trust virtual currencies, policies incentivizing their adoption may fail. ...
Structured Abstract
INTRODUCTION
The introduction of digital currencies is perhaps the most important development in monetary economics in the past decade. However, a currency’s defining role is to serve as a medium of exchange, and cryptocurrencies have yet to be widely adopted as such. This study leverages a unique quasinatural experiment that can shed light on the reasons behind this lack of adoption. El Salvador became the first country to make bitcoin legal tender; not only must bitcoin be accepted as a means of payment for taxes and debts, but also businesses are required to accept bitcoin as a medium of exchange. The government also launched an app called “Chivo Wallet,” which allows users to digitally trade both bitcoins and US dollars (USD, the official currency in El Salvador) without paying transaction fees, and provided major adoption incentives such as a large bonus for downloaders. Moreover, the pandemic provided an additional incentive to adopt touchless payments; if bitcoin has a chance to be used as a medium of exchange, then this setting gave the cryptocurrency a prime opportunity. ...
RATIONALE
We conducted a nationally representative face-to-face survey involving 1800 households in El Salvador and complemented its results with an analysis using all transactions identified as involving Chivo Wallet leveraging data from the blockchain. We explored whether Chivo Wallet and bitcoin were adopted after the government’s “Big Push,” what factors deterred adoption by individuals and firms, and what insights can be obtained from blockchain data. We also analyzed the broader lessons learned from this example.
RESULTS
We found that bitcoin was not widely used as a medium of exchange and usage of Chivo Wallet was low. Most downloads took place just as the app was launched. Since then, adoption and remittances using Chivo Wallet have been decreasing over time. These results suggest that it is unlikely that the usage of bitcoin and Chivo Wallet will increase. Privacy and transparency concerns appear to be key barriers to adoption. We also documented that this technology involves a large initial adoption cost, has benefits that significantly increase as more people use it, and faces resistance from firms in terms of its adoption. These findings are relevant for countries studying the viability of CBDCs and of crypto as a currency. Further, our survey sheds light on how it is the already wealthy and banked who use crypto, which stands in stark contrast with recurrent hypotheses claiming that the use of crypto may particularly help the poor and unbanked. An analysis relying on all blockchain transaction–level data from Chivo allowed us to validate and better understand our survey results and provided new insights on the dynamics of the use of Chivo Wallet.
CONCLUSION
Despite bitcoin’s legal tender status and the large incentives to promote Chivo Wallet in El Salvador, the cryptocurrency was not adopted at large as a medium of exchange, and digital payments were scarce and concentrated. These findings are informative about the intrinsic value of cryptocurrencies as means of payments and about the scope of CBDCs in developing countries."
El Salvador Adopted Bitcoin as an Official Currency; Salvadorans Mostly Shrugged | Yale Insights In an effort to boost financial inclusion, El Salvador made Bitcoin an official currency and offered incentives for adopting it. A new study co-authored by Yale SOM’s David Argente and Diana Van Patten found that a lack of trust caused use of the cryptocurrency to fall off quickly. Their study provides lessons to countries aiming to adopt digital currencies.
Adoption of Chivo Wallet in El Salvador.
