El Salvador: an analysis of the monetary integration law and the bitcoin law

ALONSO, SERGIO LUIS NÁÑEZ; FERNÁNDEZ, MIGUEL ÁNGEL ECHARTE; BAS, DAVID SANZ; RICO, CRISTINA PÉREZ

doi:10.1590/0101-31572024-3459

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Articles • Brazil. J. Polit. Econ. 44 (1) • Jan-Mar 2024 • https://doi.org/10.1590/0101-31572024-3459 linkcopy

El Salvador: an analysis of the monetary integration law and the bitcoin law

El Salvador: uma análise da lei de integração monetária e da lei do bitcoin

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

The objective of this article is to analyze the two most important monetary laws that have been implemented in El Salvador, namely the Monetary Integration Law (MIL) and the Bitcoin Law. The most important articles of both laws will be analyzed, as well as the consequences of dollarization, and the possible advantages and risks associated with the adoption of Bitcoin as legal tender. Although this measure may have some positive aspects by encouraging financial innovation and facilitating remittances, the macroeconomic risk is very high due to the volatility of this cryptocurrency. So far no positive results have been achieved as the acceptance has been very low and there has been a depreciation of the asset in recent months.

KEYWORDS:
Dollarization; volatility; currency stability; remittances; inflation; cryptocurrency

Date	Average purchase price: average $ / ₿ that day	Amount of bitcoin	Cost historic price * amount ($)	Current value current price * amount ($)	P/L value/cost comparison	% Win/loss
Sep 06, 2021	51769.06	200	10353812	6324264	-7006256	-67.67%
Sep 06, 2021	51769.06	200	10353812	6324264	-7006256	- 67.67%
Sep 07, 2021	52677.4	150	7901610	4743198	-5390943	-68.23%
Sep 20, 2021	47249.38	150	7087407	4743198	-4576740	- 64.58%
Oct 27, 2021	60345.17	420	25344971.4	13280954.4	-18315103.80	- 72.26%
Nov 26, 2021	58935.45	100	5893545	3162132	-4219767	- 71.6%
Dec 04, 2021	48670	150	7300500	4743198	-4789833	- 65.61%
Dec 22, 2021	48934.57	21	1027625.97	664047.72	-676132.59	- 65.8%
Jan 21, 2022	36585.37	410	15000000	12964741.2	-8137510.20	-54.25%
May 09, 2022	30744	500	15372000	15810660	-7003110	-45.56%
July 01, 2022	19 000.00	80	1520000	1339022.40	-180977.60	-11.91%

Average purchase price: average $ / ₿ that day	Amount of bitcoin	Cost historic price * amount ($)	Current value current price * amount ($)	P/L value/cost comparison	% Win/loss
$ 45.004.32	2381	$ 107.155 283.37	$ 39.852654.18	-$ 67.302.629.19	-62,81%

Advantages of bitcoin adoption	Risks of bitcoin adoption
Reduction of remittance fees, which may increase the amount of current transfers from the U.S. (Sparkes, 2022; Sorto Rivas, 2022; Mohammed et al., 2023)	Increased macroeconomic risk. The approval of the Bitcoin Law may harm future negotiations with the IMF due to increased country risk (Fusades, 2021)
It can foster financial innovations by promoting the financial inclusion of a significant portion of the population that is unbanked but has a cell phone. (Vincent & Evans, 2019: Alonso et al., 2022)	Environmental risk. Mining of this asset generates high electricity consumption. (Jiang et al, 2021).
It can drive the adoption of bitcoin as a medium of exchange internationally. (Sparkes, 2022)	High volatility of the digital asset, which generates commercial uncertainty and makes economic calculation difficult. Bitcoin is far from being a widely accepted medium of exchange. (De Oliveira Monteiro et al., 2019; Sorto Rivas, 2022)
	If there is a depreciation in the future economic agents who have saved in that asset will lose part of their wealth.
Attraction of investment for the mining of this digital asset. (Alvarez et al., 2022)	Transaction costs are added when switching from dollars to bitcoin, and vice versa. In fact, this cost is currently higher than traditional remittance. (Fusades, 2021)
If the price of bitcoin increases in the future, economic agents who have saved in this digital asset will see their wealth increase. (Fantazzini & Calabrese, 2021; Fantazzini, 2022)	May encourage money laundering activities. (Fusades, 2021)
Increase in state digital education initiatives for the general population. (Sparkes, 2022)	Disagreement of the population with the use of bitcoin as legal tender. (Alvarez et al., 2022)

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Centro de Economia Política Rua Araripina, 106, CEP 05603-030 São Paulo - SP, Tel. (55 11) 3816-6053 - São Paulo - SP - Brazil
E-mail: cecilia.heise@bjpe.org.br

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[TFN1] Source: Own elaboration based on data (11/11/2022) from https://nayibtracker.com/.