The advent of Bitcoin (BTC) as legal tender in El Salvador this September 7, 2021, will undeniably change the economic landscape of El Salvador, including for its expatriates. For while Western Union and MoneyGram have dominated foreign currency remittances from Salvadorans residing abroad to their home countries until now, the king of cryptos will clearly turn the tables.
6 billion in remittances at stake
While the internal changes in El Salvador are the most visible, with major chains, such as McDonald’s and Starbucks moving to accept Bitcoin, this crypto-revolution is also having a direct impact outside the Central American country.
Indeed, as reported by the media outlet CNBC, in 2020 alone, El Salvador received nearly $6 billion via remittances from its nationals abroad, mainly based in the United States and Canada.
One such Salvadoran expat, interviewed by CNBC, explains how annoying it was for him to pay a fortune in fees to Western Union, every time he wanted to send money to his family back home.
“In this day and age, it’s unbelievable that I have to go [physically] to a Western Union office, give them cash, and then hand over another $25 [in fees] before they send my money (…) And then, of course, it takes three days for the money to arrive in El Salvador.”Jaime García, Salvadoran expat
Now, unless you’ve just joined the cryptosphere, you already know that there are much better ways to transfer funds now, without intermediaries, very quickly, and with low costs.
Bitcoin about to change everything?
The Chivo wallet, made available to its population by the Salvadoran government, allows transactions in BTC at no cost, thanks to the Lightning Network, and of course also offers almost instantaneous cross-border payments.
“Wherever you are now, you can send bitcoins to anyone with a Chivo wallet in El Salvador, and in an instant they have the funds, and can even go to an ATM and withdraw them in cash at no cost (…) It’s mind-blowing. It’s an incredible humanitarian improvement.”Alex Gladstein, Director of Strategy at the Human Rights Foundation
The only ones who won’t be happy about this change will be intermediaries Wester Union and MoneyGram. Salvadoran President Nayib Bukele estimates that these money service providers will lose $400 million a year in remittance fees.
“This will not happen overnight. 100% of remittances are not going to move to the Chivo app tomorrow. These things take time, and people naturally worry about trying new things with their money. But the current fee levels for [traditional] money transfers aren’t going to be able to handle the competition [from Bitcoin].”Matt Hougan, Director of Investments at Bitwise Asset Management
Salvadorans abroad and their families still in the country will be able to realize significant savings, which will then trickle down into El Salvador’s real economy. In the meantime, the country is already building a veritable war chest in bitcoin, as President Nayib Bukele announced that 150 more BTC had been added to the nation’s accounts, taking advantage of the low point of the panic sell on Tuesday, September 7.