Study suggests El Salvador’s bitcoin project has failed

A study by the U.S. National Bureau of Economic Research has deemed El Salvador’s decision to accept bitcoin as legal tender to have been an economic failure. The cryptocurrency has failed to spread as a popular medium of exchange, and cost the country up to 1% of its GDP.

Why should we care?
The NBER’s findings are a warning to other countries looking to integrate cryptocurrencies into their national monetary systems. El Salvador’s government offered a $30 bonus to citizens who downloaded the Chivo digital wallet, which was designed (poorly) to turn bitcoin into a feasible legal tender in the country. The NBER estimated the disbursement of bonuses cost .7% of the country’s GDP, while the IMF thinks the real cost was closer to 1%. The bungled project has also delivered a serious reputational blow to the country among international financial institutions. The IMF has blocked a $1.3B loan to El Salvador, which the nation needs to pay off its existing debts. The Central African Republic announced last week that it, too, will make bitcoin legal tender. If El Salvador’s present woes are any indication of the CAR’s future, then the latter may expect a contracted economy, a bungled digital project, growing debts—but satisfied cryptoevangelists.