Crypto remittances in El Salvador have fallen below 1% of total remittances since October 2024, despite a peak of nearly 5% in October 2021. The population prefers traditional methods, and the Chivo wallet initiative, designed to promote crypto usage, will be discontinued as part of an IMF agreement to lessen bitcoin usage. President Bukele’s claims about crypto saving fees remain unfulfilled.
The Reserve Bank of El Salvador reported that cryptocurrency remittances into the country have remained consistently below 1% of the total remittance market since October 2024. Following the introduction of bitcoin as legal tender in 2021, the projected use of cryptocurrency for remittances has seen a sharp decline, falling from nearly 5% of total remittance inflows in October 2021 to less than 1% by December 2024.
Despite initial expectations, the use of cryptocurrencies for remittances in El Salvador has not gained traction among the dollarized population, which has shown a preference for traditional remittance methods. Financial writer John Paul Koning reported on social media that utilization of crypto in remittances has decreased after the legal recognition of bitcoin. This indicates that bitcoin has not achieved the necessary acceptance to replace conventional remittance services in the country.
The Salvadoran government previously promoted crypto remittances as a key element of its bitcoin initiative. President Nayib Bukele pointed out that the initiative would save domestic workers substantial fees incurred through traditional financial intermediaries, which could reach up to 25% of remittance amounts. Bukele stated, “With Chivo, the commission will be 0%. That is why they oppose the Bitcoin Law. They are protecting the $400 million that they take from our brothers abroad every year.”
Chivo was introduced as the official digital wallet by the Salvadoran government, intended for everyday transactions and remittances. The initiative included a $30 incentive for users who registered with Chivo. However, due to agreements with the International Monetary Fund, the operations of Chivo are set to be phased out, leading to a de-emphasis on bitcoin’s legal tender status in El Salvador.
El Salvador’s experiment with bitcoin as legal tender began in 2021, aiming to improve financial inclusion and reduce remittance costs. Traditionally, Salvadorans have relied on money transfer services, which charge significant fees, particularly for cross-border transactions. The introduction of bitcoin was seen as an opportunity to capitalize on lower transaction fees; however, the ongoing preference for traditional methods among Salvadorans has hindered its widespread adoption and integration into everyday financial systems.
In conclusion, the anticipated growth of cryptocurrency remittances in El Salvador has not materialized, showing a consistent decline since the initial hype surrounding bitcoin’s legal status. The reliance on traditional remittance services persists due to their longstanding familiarity and reliability among the populace, highlighting the challenges faced by emerging financial technologies in displacing established systems.
Original Source: news.bitcoin.com
