El Chivo Wallet, El Salvador’s app for receiving and transferring cryptocurrencies could cost Western Union up to $400 million in commissions a year, according to President Nayib Bukele. The remittance market accounts for up to 25% of El Salvador’s GDP.
Nearly a quarter of all households in El Salvador supplement their income with remittance money, 94% of which comes from the United States. Nearly 2,400,000 Salvadorans reside in the United States, almost a quarter of the country’s population.
In the first three months of 2021, remittance income from El Salvador grew by 30% compared to the first three months of 2020, before the pandemic.
Bukele has launched an aggressive Bitcoin adoption campaign, offering $30 in the new Salvadoran wallet to any citizen who installs the app, a not inconsiderable amount in a country where the minimum wage is $365 per month. The Government of El Salvador, on Tuesday, purchased more than $21 million in the cryptocurrency, which will be distributed among Salvadoran citizens.
On average, a Salvadoran family receives a monthly remittance of $195, these remittances can constitute up to 50% of the income of households receiving these remittances.
The difficult adoption of Chivo Wallet
The adoption of Chivo Wallet will not be immediate, as up to 70 % of El Salvador’s population opposed to Bitcoin being declared legal tender, many Salvadoran merchants refuse to accept the cryptocurrency for the time being.
Despite the initial rejection that bitcoin may have in the population, the use of Chivo App does not cease to have its incentives and that is the immediacy and virtually non-existent commissions, compared to the more expensive option of Western Union.
At present, hundreds of thousands of Salvadorans have to physically go to Western Union to deposit money for their families, in addition to paying a hefty commission of up to 12.5% for a $100 transfer for the money to reach their families 3 days later in El Salvador.
With the Chivo Wallet, Salvadorans would avoid these transaction costs and would be able to make more direct, faster and commission-free payments to their families. Salvadorans send more than $6 billion home each year, so the fees charged by companies such as Western Union are quite high.
Although Chivo is a bitcoin wallet, users can make the immediate conversion to dollars in the application and receive payment in dollars, this advantage will allow Salvadorans to receive their money in dollars without being exposed to the volatility of bitcoin.