Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador

50 Pages Posted: 27 Apr 2022

See all articles by Fernando Alvarez

Fernando Alvarez

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

David Argente

Pennsylvania State University

Diana Van Patten

Yale University

Multiple version iconThere are 2 versions of this paper

Date Written: April 26, 2022

Abstract

This paper studies the potential of a cryptocurrency to become a medium of exchange. We use evidence from a natural experiment: In September 2021, El Salvador became the first country in the world to make bitcoin legal tender, and all economic agents were required to accept bitcoin for all payments. The Salvadorean government also launched an app, “Chivo Wallet,” which allowed users to digitally trade both bitcoin and dollars, and gave major incentives to download it. We conduct a representative national face-to-face survey to obtain information on bitcoin’s usage and effects. Leveraging this data, we document how, despite the government’s “big push” and a large fraction of people downloading Chivo Wallet, usage of bitcoin for everyday transactions is low and is concentrated among the banked, educated, young, and male population. We also estimate the fixed cost of adopting the new payment technology, the importance of strategic complementarities for users, and the elasticity of substitution between mobile payments and other payment methods.

JEL Classification: E4,E41,E42

Suggested Citation

Alvarez, Fernando and Argente, David and Van Patten, Diana, Are Cryptocurrencies Currencies? Bitcoin as Legal Tender in El Salvador (April 26, 2022). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2022-54, Available at SSRN: https://ssrn.com/abstract=4094160 or http://dx.doi.org/10.2139/ssrn.4094160

Fernando Alvarez (Contact Author)

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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David Argente

Pennsylvania State University ( email )

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Diana Van Patten

Yale University ( email )

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New Haven, CT CT 06520
United States

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