Central banks in more than 100 countries around the world are considering adopting digital currencies to increase financial inclusion and the efficiency of payments for their populations; some countries—including the Bahamas, Jamaica, and Nigeria—have already launched such currencies.
El Salvador took a different path toward digital payments. In 2021, in order to promote financial inclusion and job creation and facilitate remittances, it became the first country to adopt Bitcoin as a legal tender. At the same time, the country launched Chivo Wallet, an app that offers many of the same benefits as a central bank digital currency (CBDC), including accessibility and the ability to pay peers and firms and make deposits and withdrawals both in U.S. dollars (the country’s official currency) and in Bitcoin. But Bitcoin, of course, is different than a CBDC in many ways—not least of which is that its value is not backed by a central bank.
Because of the interest in digital payment systems around the world, El Salvador’s experience could be informative. But the country has been tight-lipped about its experience, much to the chagrin of the International Monetary Fund. Yale SOM’s David Argente and Diana Van Patten and their co-author Fernando Alvarez of the University of Chicago developed a survey to get more information directly from people in El Salvador and have written a new paper, published in Science magazine, that analyzes Salvadorans’ use of Bitcoin and Chivo Wallet.
They find that neither Bitcoin nor the app are getting much use, despite a battery of incentives put in place, an indication that governments may face an uphill battle in convincing their citizens to adopt new payment technologies in a way that furthers financial efficiency and inclusion.
“This is as good as it gets for an experiment” about the launch of a new digital currency, Argente explains. “It was a beautiful chance to study theories that we’ve never had a chance to test.”
Much of the publicly available information about the use of Bitcoin and Chivo Wallet in El Salvador has come in tweets by the country’s president, Nayib Bukele. Argente, Van Patten, and Alvarez did not receive responses to their requests for information from the government, so they decided to take their questions to Salvadorans themselves. In February 2022, in partnership with the research firm CID Gallup, they conducted an in-person survey of 1,800 representative households in the country to ask about people’s knowledge and use of Chivo Wallet. They then hired a firm to analyze blockchain data of transactions involving the app to validate their findings.
The researchers were impressed by how many people were aware of and downloaded the app: almost 68 percent of potential users knew about Chivo Wallet; 78 percent of that group at least tried to download it. But from there, the numbers declined drastically. Despite incentives by the government—including a $30 Bitcoin bonus, a discount on gas when bought with the Chivo Wallet, and the elimination of certain transactional fees—almost 20% of people who downloaded the app hadn’t used their bonus by the time of the survey and most people who spent their bonus didn’t continue to use the app after doing so.
Further, more than 20% of people surveyed knew about the app but did not try to download it. The authors had expected that people might be skeptical of Bitcoin because of the volatility (and therefore risk) of cryptocurrencies in general. But instead, people shared that they did not trust the app or Bitcoin because they are not anonymous, as cash is. The latter explains why Chivo Wallet was not even used to conduct transactions in dollars. These are important findings for policymakers looking to adopt digital currencies in their own countries: like Chivo Wallet, any digital currency will require governments to keep a record of users and their transactions; if people don’t trust the government or the technology, they won’t use it.
“The issues of trust and privacy are going to be key,” Argente says. If a lack of trust leads to a lack of adoption, that undermines the network effects that make digital technologies more useful. “That’s something any government should keep in mind.”
The authors’ analysis of data on the blockchain—the digital public ledger where Bitcoin transactions are typically captured—validate their survey findings. Many wallets, including Chivo Wallet, are custodial, meaning they do not verify their transactions on the blockchain. But the authors could see certain transactions, including Bitcoin transfers between Chivo Wallet and other crypto wallets. The blockchain data was in line with the authors’ survey results: transactions peaked around the time of the country’s adoption of Bitcoin and then decreased significantly.
The paper is already having an impact: the IMF and United Nations have asked for more information about the authors’ findings, as have entrepreneurs seeking to develop fintech products and people who follow developments in cryptocurrencies.
Argente, Van Patten, and Alvarez, who also are collaborating on research into the adoption of a digital payment system in Costa Rica, where Van Patten grew up, plan to continue their work in this area.
Argente says he is fascinated by the study of payment systems. “The promise of financial inclusion can be fulfilled if we figure out a way to provide technologies to people in a way that they can actually adopt them,” he says.
