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| How El Salvador Solved Its Problems With Bitcoin |
El Salvador is located in Central America and has a population of about 6.4 million. Its citizens have faced many problems when receiving money from other countries/regions. However, cryptocurrency bitcoin can greatly alleviate these problems.
In fact, El Salvador receives up to $6 billion in remittances from abroad annually. Foreigners send money to family and friends in China. These remittances accounted for 23% of the country's GDP.
Citizens have very difficult experiences with international transfers. This is mainly because most of them go through money transfer companies like Western Union rather than relying on wire transfers.
The first problem they encountered was that it took three days for the transfer to reach El Salvador and the transfer fee was high. Also, the biggest issue was that the recipient had to go to their local Western Union office to get it. It is a dangerous operation as these branches are surrounded by gangs and thieves. Once they leave the branches, their money can be stolen.
Remittance challenges in El Salvador
Western Union is recognized as a leader in global wire transfers. However, the company deducted significant transfer costs during the transition. There is a $12.5 transfer fee for sending $100 to El Salvador.
The issue of remittances is one of the issues that prompted Najib Bakila, the Palestinian president of El Salvador, to bet on bitcoin as the country’s official currency, and of course on the US dollar.
This clearly shows the interest of the President of El Salvador and the entire government in the cryptocurrency Bitcoin. The government has introduced a local Bitcoin wallet that all citizens can use. It's called Chivo, which is a Salvadoran word that means "awesome" in English and "beautiful" in Arabic.
Once a Salvadoran citizen applies for this wallet, he will receive $30 in government assistance. When you consider that the minimum wage in El Salvador is $365 a month, that's a lot of money.
Chivo Wallet solves the payment issue mentioned above. Because this prevents the sender from bearing the costs of the transfer and the recipient does not go to an agency to bear the associated risks.
Relying on Bitcoin as a Currency
It should be noted that remittances are very important in El Salvador. Because 70% of citizens depend on monthly transfers from abroad. On average, transfers make up half of total household income.
In addition, 60% of money transfers abroad reach their parents through money transfer companies such as Western Union and MoneyGram. And 38% of transfers are via bank transfer.
Transfer fees through Western Union have reached a very high level. Sending $10 from Canada to El Salvador costs 33%. This is only a $3.24 transfer fee.
It is estimated that money transfer companies lose up to $400 million per month if Salvadorans rely entirely on Chivo e-wallets. Some sources expect the figure to reach $1 billion.
Western Union does not want to comment on this. Nor did she wish to say whether she feared the new mode of transmission for El Salvador.
However, using Chivo Wallet will be simple. Because the transfer from one wallet to another, that is, from one citizen to another, will be free. Money is also withdrawn through a special ATM. More than 200 new Chivo coin machines have been distributed in major regions of the country.
Quite simply, the citizen will immediately withdraw the required amount in US dollars from his wallet. He does not have to sell Bitcoin himself. And all the rest in bitcoin.
So far we don't know what will happen in El Salvador. We do not know if the main goal of trusting Bitcoin and providing a dedicated wallet is to provide convenience and speed to citizens, or whether the competent authority has other goals.