EXCLUSIVE Bitcoin transfers to El Salvador soar, but still a fraction of dollar remittances
Small bitcoin transfers to El Salvador quadrupled in May from a year ago, but still represents a small amount compared to remittances sent in dollars, data shared with Reuters showed.
The Central American country last week became the first country to adopt bitcoin as legal tender, with President Nayib Bukele touting the potential of cryptocurrency as a transfer currency for Salvadorans abroad. Read more
Monthly bitcoin transfers under $ 1,000 – an indicator of money sent home by Salvadorans working abroad – totaled $ 1.7 million in May, up from $ 424,000 a year earlier, discovered the American cryptographic researcher Chainalysis.
These transfers peaked at $ 2.5 million in March, although a comparison with the previous year was not available.
El Salvador is heavily dependent on remittances. In 2019, transfers using traditional currency totaled nearly $ 6 billion – about a fifth of GDP – one of the highest ratios in the world, according to the World Bank.
The sharp rise in bitcoin transfers reflects trends across Central America, according to data, one of the first glimpses of crypto use in El Salvador. Yet its careful use over traditional remittances suggests that cryptocurrency is still a niche tool for Salvadorans.
Chainalysis, which tracks crypto feeds for U.S. financial firms and law enforcement, compiles geographic data by analyzing web traffic and trading patterns, although the location of transactions may be obscured by VPNs .
Data for El Salvador for October-January were not available.
DEPENDENCE ON PAYMENTS
In its latest report, the World Bank found that in the first three months of 2021, remittances to El Salvador jumped by a third year out of a year. About 95% are from Salvadorans working in the United States, he said.
Bitcoin, in theory, offers a fast and inexpensive way to send money across borders without relying on traditional and often expensive transfer channels. Yet its relative complexity and lack of infrastructure for converting to dollars is widely seen as hampering its use.
While El Salvador sees bitcoin as a useful way for foreign citizens to send funds to their homes, large money transfer companies are cautious about offering cryptocurrency services. Read more
Separately, rating agency Moody’s said on Friday that Salvadoran bitcoin law could jeopardize an agreement on a funding program with the International Monetary Fund (IMF).
This decision “carries risks for the financial system, the stability of the country’s monetary regime and signals the absence of a coherent economic framework,” Moody’s said.
The IMF on Thursday warned it had economic and legal concerns over Salvadoran law, widening spreads on the country’s bonds. Read more
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