World Bank deals blow to El Salvador’s bitcoin dream

The use of bitcoin is already widespread in the Salvadoran town of El Zonte

Credit: Alex Pena/Anadolu Agency

The World Bank on Wednesday declined to assist El Salvador in implementing bitcoin as legal tender, citing the environmental impact of the power-intensive process of "mining" the currency.

El Salvador wants to become the first country to formally adopt the cryptocurrency, using it as a parallel legal tender alongside the US dollar, and recently approached the World Bank for help in achieving this.

A World Bank spokesman said: "We are committed to helping El Salvador in numerous ways including for currency transparency and regulatory processes.

"While the government did approach us for assistance on bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings."

With an economy that relies heavily on remittances, president Nayib Bukele says the cryptocurrency will make it easier for Salvadorans living abroad to send money home, and that it “will generate jobs and help provide financial inclusion to thousands outside the formal economy”.

Legislation has already passed, which would make it mandatory for businesses to accept bitcoin unless they are unable to provide the necessary technology. People would also be able to pay their taxes with bitcoin.

But the World Bank’s decision not to provide technical assistance means implementation may be difficult within the 90-day window specified by the law.

A man withdraws cash from a bitcoin ATM in El Zonte, El Salvador

Credit: Alex Pena/Anadolu Agency

Bitcoin is "mined" by powerful computers solving complex algorithms in a highly energy-intensive process. According to the Cambridge University Bitcoin Energy Consumption Index, bitcoin mining is now responsible for more electricity consumption each year than some entire countries, including Argentina and the UAE.

Some institutions also oppose the use of cryptocurrencies because they are unregulated, raising concerns about the potential for money laundering and tax evasion.

Critics say the plan to use bitcoin as an official currency is impractical, especially in a country where many people do not have access to the internet.

El Salvador is also in the midst of ongoing loan negotiations with the International Monetary Fund over a potential $1 billion support package, which is critical to patching budget gaps.

Despite the World Bank’s rejection, Alejandro Zelaya, the Salvadoran finance minister, said the IMF was "not against" the bitcoin implementation, although the IMF said last week it saw "macroeconomic, financial and legal issues" with it.

Investors have recently demanded higher premiums to hold Salvadoran debt amid growing concerns over the completion of the IMF deal, which the bitcoin decision could complicate.

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