Title: Bitcoin Tenderization in El Salvador

Research Question: To what extent is Bitcoin beneficial as legal tender in El Salvador's

economy?

Economics Extended Essay

Subjects: World Studies and Economics

Personal Code: jyt176

Word Count: 4000

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Table of Contents

Introduction…………………………………………………………………………………………………………………………….2

Literature Review……………………………………………………………………………………………………………………3

Methodology………………………………………………………………………………………………………………………….4

Introduction to the case study: Bitcoin………………………………………………………………………………4

Theoretical Framework………………………………………………………………………………………………………..5

Economic theories that define a successful economy……………………………………….5

Neoclassical Theory…………………………………………………………………………………….5

Innovation Theory…………………………………………………………………………………………6

Discussion and Analysis……………………………………………………………………………………………………..7

Announcement of Chivo Wallet……………………………………………………………………………..7

El Salvador Post-Bitcoin………………………………………………………………………………………….9

Effectiveness of Bitcoin in relation to Capital Accumulation and Innovation

Economics………………………………………………………………………………………………………………………….11

Conclusion………………………………………………………………………………………………………………………….11

Bibliography………………………………………………………………………………………………………………………..13
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Introduction

Cryptocurrency is an alternative to centralized fiat currencies such as the dollar,

with Bitcoin being the most popular. It has taken hold of an enthusiastic group of
individuals that are eager for innovative change to old systems. One of these individuals
is the 43rd El Salvadoran president Nayib Bukele, an ambitious leader who views
Bitcoin as a preferable alternative to the US Dollar, the current currency El Salvadorans
use today. Bukele believed in the currency so much that on September 7, 2021, he
implemented the Bitcoin Law, a piece of legislation that made Bitcoin legal tender and
required all businesses to accept bitcoin for payments, thus making El Salvador the first
country in the world to adopt Bitcoin as legal tender.1
Throughout all of his speeches made to his people, Bukele tends to highlight 4
main advantages that Bitcoin would provide to El Salvador if made a national currency.
The first reason Bukele highlights is that this would provide “banking to the unbanked”,
meaning the introduction of Bitcoin to El Salvador as legal tender would give everyone
the ability to have a digital wallet to hold cryptocurrency, which meant that even if you
didn’t or were unable to store your funds in an official bank account, you would have the
ability to store your funds in the form of Bitcoin on your digital wallet.2
Bukele’s second reason is that if Bitcoin was to be used as legal tender within El
Salvador, then the cost of remittances to the country from migrant workers abroad
would decrease, thus saving money that the families in El Salvador need. Remittances
make up a large percentage of the GDP within El Salvador, so if Bitcoin would allow
migrant workers to pay less fees for remittances, then the entire country would see a
spike in GDP.3
Bukele’s third reason is that if Bitcoin was to be used as legal tender within El
Salvador, then the population of El Salvador wouldn’t have to rely so much on the US
dollar for their own currency. El Salvador originally adopted the US dollar to ensure
stability for their economy, as at the time, the colon, El Salvador’s national currency, was
at dangerous levels of hyperinflation. However, now that El Salvador is starting to
improve its economy, Bukele doesn’t want to rely on a foreign currency over which the
domestic government of El Salvador has no control. With Bitcoin as legal tender, El
Salvador wouldn’t need to worry about any form of foreign influence on their currency.

1
Steve H. Hanke, Nicholas Hanlon, and MIhir Chakravarthi, "Bukele's Bitcoin Blunder," Studies in Applied
Economics, June 2021, 3, accessed September 6, 2022,
https://sites.krieger.jhu.edu/iae/files/2021/11/Bukeles-Bitcoin-Blunder-Final.pdf.
2
Joe Hernandez, "El Salvador Just Became the First Country to Accept Bitcoin as Legal Tender," NPR, last
modified September 7, 2021, accessed September 7, 2022,
https://www.npr.org/2021/09/07/1034838909/bitcoin-el-salvador-legal-tender-official-currency-cryptocurr
ency.
3
Hanke, Hanlon, and Chakravarthi, "Bukele's Bitcoin," 3.
 3

Bukele’s fourth and final reason is that if Bitcoin were to be used as legal tender
within El Salvador, then the El Salvadoran economy would grow. This reason, however,
seems to be much more vague than the other two. Whenever Bukele talks about
growing the El Salvadoran economy through Bitcoin, he talks about different kinds of
growth, as well as where it would come from. Bukele explains that Bitcoin would allow
more people to save and earn more money, thus growing the GDP per capita of El
Salvador. Bukele also explains that introducing Bitcoin would allow the country of El
Salvador to grow technologically through El Salvadoran entrepreneurship and
innovation as a result of the increased technical equipment and education that would
come from introducing Bitcoin to the people of El Salvador.
Bukele’s implementation of Bitcoin as legal tender is an important first step for
Bitcoin, as this was its main purpose, so the outcomes of this implementation will be
vital to the future of Bitcoin as a legitimate national currency. I will analyze the effect of
the Bitcoin law on the economy of El Salvador using economic theory, and explore the
various ways in which it impacted the nation. In the end I will conclude whether or not
the Bitcoin Law was a success and what this means for Bitcoin and other
cryptocurrencies as possible future legal tender for other nations.
The topic of the Tenderization of Bitcoin in El Salvador is worthy of investigation
as it is a significant alternative to traditional centralized finance, one that, if successful,
can provide several advantages for the world’s people such as the ones Bukele
outlined. The findings of this investigation can determine whether or not we will see the
future of finance and national currency changed.

Literature Review

This topic is barely over a year old as the Bitcoin law was implemented at about
that time. However, there has been a swath of academic content that evaluates this
decision, its motivations, and ultimately, its effects since that time, as this is a
revolutionary first in the realm of economics and cryptocurrency, which naturally invites
the attention and critiques of numerous notable names. I have used a wide variety of
sources to help conduct my own research and evaluation of this topic, but I center in on
3 in particular, as these present either the most relevant, descriptive, or insightful
knowledge to be gained from all of my sources.
Bukele’s Bitcoin Blunder is part of a series called Studies in Applied Economics
at Johns Hopkins University. This particular study was conducted by Professor Steve H.
Hanke, along with two statistics majors: Nicholas Hanlon and Mihir Chakravarthi. In their
study, they look at one of the main goals Bukele outlined for the Bitcoin Law, decreasing
remittance fees to increase GDP, and evaluate if this goal has been accomplished.
Techno-Economic Paradigms: Essays in honour of Carlota Perez was a series of
works published by Wolfgang Dreschler, Rainer Kattel, and Erik S. Reinert, experts of
 4

public policy and economic theory, that explain the theories and applied works of
Carlota Perez, an avid supporter of innovation economics. The works go on to explain
the origin and development of innovation economics, as well as how it could be applied
to a country, and used to evaluate their technological growth.
Case Studies from Social Science Research in India was a series of studies
compiled and published by Meghna Vesvikar, the principal of the college of social work
at mumbai, India, that delve into the economic and social circumstances that are faced
in a variety of Indian provinces. One specific case outlines the neoclassical theory in
economics with an emphasis on the Solow economic growth model, and uses it to
perform an evaluation of the economic growth in several residential areas all across
India.

Methodology

By researching online for countries that had implemented Bitcoin as legal tender
at the time of the question proposal, I concluded that El Salvador would be the only
viable option to research as it was the only country that had done so at the time. To
identify the focus of this investigation, I researched potential effects Bitcoin as a
currency would have on a national scale as well as Bukele’s personal beliefs about the
advantages Bitcoin would provide. This led me to identify the points of banking the
unbanked, lowering remittance fees, and growing the El Salvadoran economy as
metrics to use when evaluating the success Bitcoin has had on the economy of El
Salvador as a national currency. Research into the potential success of Bitcoin as a
currency has also led me to believe that these metrics are strong indicators of Bitcoin’s
likelihood of success as a currency in any given country. I will utilize economic theory to
determine the extent of which Bitcoin in El Salvador as a currency has accomplished
the metrics.

Introduction to the case study: Bitcoin

On October 28, 2008, the world was introduced to the concept of Bitcoin. A
decentralized cryptocurrency that used blockchain technology to keep track of all
holdings and transactions, Bitcoin was an innovative new look at finance to a world that
had only known fiat currencies, complex third parties, and closed ledgers. In the
Whitepaper, the set of notes that detailed what Bitcoin was, how it worked, and what it
was meant to be, Satoshi Nakamoto, the pseudonymous creator of Bitcoin, explained
how Bitcoin was meant to be a peer-to-peer system of finance, meaning that all
transactions would be directly from one person to another, instead of the typical
centralized system in which a person must go through a bank to perform transactions.4

4
Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, [Page #], October 31, 2008, accessed
January 7, 2022, https://bitcoin.org/bitcoin.pdf.
 5

Satoshi also explained that Bitcoin’s ultimate purpose was to function as a replacement
currency system that would remove the need for any third party interference such as
that of a bank. Bitcoin has exploded in popularity ever since its inception thanks to the
explosive growth in value it has seen, and the many other applications of blockchain
technology that have originated from it.

Theoretical Framework

Economic theories that define a successful economy

Neoclassical theory: Solow economic growth model

Neoclassical theory operates under three key assumptions. People have rational
preferences between outcomes, and these are associated with values. Individuals
maximize utility and firms maximize profits. Lastly, people act independently on the
basis of full and relevant information.5 This model was extremely prominent in the 1950s
to 1970s because of its ability to explain certain macroeconomic situations. It runs on
the basis of supply and demand and is prevalent in today’s world. Within the confines of
the Neoclassical theory lies the Solow economic growth model, a model that is capable
of determining a country’s economic growth over the short and long term.

Figure 1: Diagram of the Solow economic growth model.

Source: Sachs, The End of Poverty, 274.

5
Meghna Vesvikar, Case Studies from Social Science Research in India (Cambridge Scholars Publishing,
2022), 3, accessed September 6, 2022,
https://www.cambridgescholars.com/resources/pdfs/978-1-5275-7699-5-sample.pdf.
 6

This model proposes that a key component of economic growth is saving and
investment. Meaning that, according to this model, in order for a country to consistently
and sustainably grow its economy for the short term, its citizens will have to begin
increasing their savings and start investing their money into a variety of assets. This will
not only benefit the economy by increasing expenditures, which in turn increases GDP
per capita, but it will also improve the standards of living for the country’s citizens as this
will give them access to more funds. This model is similar to the concept of capital
accumulation, a process that describes how individual households grow capital over
time. In a typical household, part of their income is spent on the consumption of goods
and services, another part contributes to the public budget through a variety of tax
payments, and the last part being disposable income that contributes to the household
savings. Through household savings and increased public investment, the capita per
person increases at a faster rate year after year. If this process happens consecutively,
and the capital per person increases consistently, then economic growth occurs as the
productive capacity of the economy rises. In other words, through the process of capital
accumulation, in which people save and invest part of their income to grow their capital,
the country’s national economy grows.

Innovation theory

Innovation economics is a newer school of economic thought. Originating from

the mind of Joseph Schumpeter during the 20th century, it only recently gained
relevance due to the incredible amount of innovation that has occurred at the turn of the
century, with various lucrative industries like information technology taking the world by
storm, and placing developed countries like the United States, the United Kingdom, and
Japan miles ahead of developing countries who have yet to adopt these innovative
industries. Innovation economics claims that instead of independent forces that are
largely unaffected by policy, entrepreneurship, evolving institutions, and technological
change are actually at the heart of economic growth. Innovation economics claims that
innovation and thus economic growth are spurred by four things. Knowledge that is
either implicit or explicit, meaning that the population of a country is educated in
quantitative knowledge and aware of qualitative characteristics of a variety of industries.
Regimes and policies that allow for innovation, entrepreneurship, and technological
change via R&D expenditures and permits and licenses which encourage the facilitation
of new technology that can benefit the country. Collaboration between technological
firms that allow for the diffusion of ideas and thus innovation. And lastly, systems of
innovation that create innovative environments such as metropolitan cities with various
firms, and highly educated areas that can spread knowledge faster (Drechsler 2009,
 7

126).6 Innovation economics states that if a country successfully innovates and creates
more efficient products, processes, or business models, then the growth in standards of
living and GDP per capita will accompany it.

Discussion & Analysis

Announcement of the Chivo Wallet

Bukele’s first reason for implementing the Bitcoin law was to help “bank the
unbanked '' in El Salvador, as there is a high level of unbanked individuals in the nation.
In 2017, 71% of the country was unbanked.7 This is a huge problem in El Salvador: if
the people couldn’t securely save and grow their capital, then, according to the Solow
Growth Model, they couldn’t accumulate capital and increase the GDP per capita of the
country as a whole. However, with Bitcoin as legal tender, all you would need to access
a bank-like digital wallet would be a mobile device and internet access. Considering
how El Salvador, a country with a population of over 6 million, has about 8.9 million
mobile phone connections, it would theoretically be a much more viable option than a
traditional bank account .8 However, in order to convince the population to adopt Bitcoin
as a currency, Bukele knew that the citizens of El Salvador would need an easy and
controllable way to manage their Bitcoin, one which the government could easily
regulate to ensure the steady adoption of Bitcoin. On June 24, 2021, about three
months before the Bitcoin law would be implemented, Bukele announced the Chivo
Wallet.9 The Wallet would be an easy way for Salvadorans to manage their bitcoin and
use it for everyday transactions. The wallet would also be compatible with other
Cryptocurrency wallets the citizens might have. To encourage additional adoption of the
wallet and thereby Bitcoin, Bukele stated that those who download the app would
receive $30 in Bitcoin on their Chivo Wallet, about 3 days pay for the average person in
El Salvador. Bukele also announced that to ease the transition from dollars to Bitcoin
and to make transactions between the two easier, he would be installing 200 new
Bitcoin ATMs throughout El Salvador. 10

6
Wolfgang Drechsler, Rainer Kattel, and Erik S. Reinert, Techno-Economic Paradigms: Essays in Honour of
Carlota Perez, Anthem Other Series Economics (n.p.: Anthem Pass, 2009), 126,
https://www.jstor.org/stable/j.ctt1gxpccq.
7
Hernandez, "El Salvador," NPR.
8
"El Salvador Demographics," Worldometer, accessed September 7, 2022,
https://www.worldometers.info/world-population/el-salvador-population/.
9
Pymnts, "Bitcoin Daily: El Salvador Prepares to Launch Bitcoin Wallet in September; After Visa's NFT Buy,
90 CryptoPunks Get Snapped up," PYMNTS, last modified August 23, 2021, accessed September 7, 2022,
https://www.pymnts.com/news/bitcoin-tracker/2021/bitcoin-daily-el-salvador-bitcoin-wallet-september-vi
sa-nft-buy-90-cryptopunks/.
10
Pymnts, "Bitcoin Daily," PYMNTS.
 8

The Chivo Wallet would also accomplish the other 3 goals Bukele had for El
Salvador. The Chivo Wallet would be able to make remittances at any time of day
without any form of intermediation at all, ensuring a quick, efficient, and convenient way
to perform money transfers, which helps with Bukele’s goal of wanting to maintain and
decrease remittances to El Salvador. The Chivo Wallet was also made to be a simple,
wallet-like device that anyone could use to store dollars or Bitcoin to perform
transactions, encouraging people to treat Bitcoin like a more familiar currency like the
dollar, which helps further the third goal of Bukele’s Bitcoin Law to de-dollarize the
country by switching to Bitcoin. Lastly, as the Chivo wallet is a government-funded
attempt to help bolster the economy of el salvador by providing the population with a
new technological way of storing and transferring money, they are essentially helping to
grow the economy. The Government is also helping to bolster the economy through a
variety of ways other than the chivo wallet, such as investing in additional infrastructure
to help transition the population from the dollar to Bitcoin in the form of ATMS, or
investing in volcano-powered cryptocurrency mining operations to help increase the
amount of Bitcoin El Salvador has. But the most promising investment, Bukele
announced in November 2021, will go to building a “Bitcoin City”. This “Bitcoin City” Will
be almost entirely powered by the Conchagua Volcano’s Geothermal vents, and was
described by Bukele to be a haven for those who are passionate about cryptocurrency.11
This new city has a lot of potential to be a significant economic advantage for the
country as it would provide a substantial amount of jobs, education, and technological
innovation to the country. Lastly, being the first country to make Bitcoin legal tender,
Bukele stated that the country would gain a significant amount of tourism from fans of
the cryptocurrency, as well as foreign investment from eager supporters of the Bitcoin
Law to help implement important infrastructure such as ATMs or mining rigs. The plan
was set, and the benefits seemed promising, but the country would need to wait until
the actual implementation of the law to see if the goals Bukele set out would truly be
accomplished.

11
Albinson Linares, "A 'Bitcoin City' in El Salvador Inspired by Ancient Greeks? Here's a Reality Check.,"
nbcnews, last modified November 30, 2021, accessed September 7, 2022,
https://www.nbcnews.com/news/latino/bitcoin-city-el-salvador-inspired-ancient-greeks-s-reality-check-rc
na6944.
 9

El Salvador Post-Bitcoin

On September 7th, 2021, the Bitcoin Law was implemented in El Salvador, the
chivo wallet was released, and Bitcoin was officially legal tender in the country of El
Salvador.12 However the Salvadoran government’s expectation for a success of the law,
was met only with one of the worst cryptocurrency crashes of that year. Bitcoin fell more
than 8.5%, marking a huge loss for holders of Bitcoin worldwide.13 This might make it
seem like an immediate failure, but it is important to evaluate all of the factors and wait
until we are able to make a substantial conclusion. Although Bitcoin as an asset
immediately fell in value, the chivo wallet did onboard 4 million new users, which El
Salvador estimates to be about 70% of their unbanked population, meaning that 4
million people who did not have access to the important features and benefits that
banking provides now have the ability to begin growing their own capital.14 That being
said, there were some complications with the usage of the chivo wallet for the citizens of
El Salvador. For example, the Chivo wallet app was unable to be downloaded from the
google play store, and instead had to be downloaded from Huawei’s app gallery, an app
that is infamous for its lack of security and transparency.15 The Chivo wallet app was
also prone to multiple security issues, with several people having their wallets used for
purchases they never made. All of the complaints from the citizens flooded the
government website responsible for helping Salvadorans with their Chivo Wallets. This
demonstrated the incredible amount of frustration the populace felt towards the Chivo
Wallet and Bitcoin as well. The population of El Salvador was also frustrated because of
their view of bitcoin as a tool for money laundering, and their overwhelming preference
for the dollar. A study conducted by the Central American University showed that nearly
70% of the population didn’t want to use Cryptocurrency as legal tender, with most not
even knowing that Bitcoin was a cryptocurrency in the first place.16 All-in-all, El

12
Hanke, Hanlon, and Chakravarthi, "Bukele's Bitcoin," 3.
13
Tanaya Macheel, "Bitcoin Tumbles Nearly 10% as El Salvador Adopts It as Legal Tender," CNBC, last
modified September 7, 2021, accessed September 8, 2022,
https://www.cnbc.com/2021/09/07/bitcoin-retreats-from-the-highest-level-since-may-as-el-salvador-adop
ts-it-as-legal-tender.html.
14
Avik Roy, "In El Salvador, More People Have Bitcoin Wallets than Traditional Bank Accounts," Forbes, last
modified October 7, 2021, accessed September 8, 2022,
https://www.forbes.com/sites/theapothecary/2021/10/07/in-el-salvador-more-people-have-bitcoin-wallet
s-than-traditional-bank-accounts/?sh=567765e120b5.
15
Hamza Fareed Malik, "El Salvador's Chivo Bitcoin Wallet Gets a New Software Developer after
Complaints about ID Theft and Disappearing Funds," Business Insider, last modified February 3, 2022,
accessed September 8, 2022,
https://markets.businessinsider.com/news/currencies/el-salvador-chivo-bitcoin-wallet-new-software-dev
eloper-fix-issues-2022-2#:~:text=But%20Chivo%20users%20have%20reported,social%20media%2C%20ac
cording%20to%20reports.
16
Reuters, "Majority of Salvadorans Do Not Want Bitcoin, Poll Shows," Euronews, last modified March 9,
2021, accessed September 8, 2022,
https://www.euronews.com/next/2021/09/03/el-salvador-bitcoin-poll.
 10

Salvador’s population doesn’t want to use Bitcoin as a replacement for the dollar, which
means any time they get Bitcoin, they will most likely exchange it for the US dollar. In
the realm of remittances, this makes all the difference.

Table 1: Average cost of remittance payments from the U.S. to El Savlador by firm

Source: Hanke, Hanlon, and Chakravarthi, "Bukele's Bitcoin," 5.

Normally, the cost to send money internationally would be about 1.98% via Western
Union, but with Bitcoin, there are no transaction costs of any kind, even across
borders.17 This was the initial aspect of Bitcoin that was most popular with the citizens of
El Salvador, as not having any transaction fees on their remittances would increase
their income. However, considering how Salvadorans prefer to use dollars instead of
Bitcoin, they would need to exchange any Bitcoin they receive from remittances to
dollars, and the only place they could do that would be at a Bitcoin ATM. Bitcoin ATMs
require a transaction fee to convert BTC to USD, and the company that makes the
ATMs in El Salvador, Athena, has listed its transaction fee at about 5% plus any network
fees that speed up the transaction.18 Not counting the travel expenses and safety
expenses when using an ATM in El Salvador, any exchange from BTC to USD will have
at least a 5% transaction fee, which is more than twice the average remittance fee for
Western Union. All-in-all, the implementation of the Bitcoin Law didn’t immediately show
the success the El Salvador Government wanted it to. The Chivo Wallet, while
successfully bringing a degree of financial inclusion, had numerous technical difficulties
that frustrated the population and convinced them to disregard Bitcoin even more. The
price of the currency dropped by almost 10%, decreasing the purchasing power of the
currency for the Salvadorans. And the failure of the government to account for
infrastructure that ensured the low costs and convenience of using Bitcoin for
remittances was the biggest contributor to the failure of Bitcoin as a currency in El
Salvador.

17
Hanke, Hanlon, and Chakravarthi, "Bukele's Bitcoin," 3.
18
Hanke, Hanlon, and Chakravarthi, "Bukele's Bitcoin," 3.
 11

Effectiveness of Bitcoin in relation to Capital Accumulation and Innovation Economics

The biggest success that came from the Bitcoin Law was no doubt the increased
financial inclusion that came from the Chivo Wallet. A convenient and simple way to
bank that only requires a phone and internet connection was a brilliant way to give the
unbanked population of El Salvador a way to begin growing their capital and purchasing
power, thus bolstering the economy. However, that alone wasn’t enough to start the
process of Capital Accumulation, as the unbanked needed disposable income to begin
in the first place. Along with that, the wallet itself was unreliable as a bank account, as
multiple account users reported seeing transactions they didn’t make. In the realm of
Innovation Economics, the Chivo Wallet was also a partial success due to it being an
innovative tool that gave people a way to hold onto more value and not rely on cash as
much, however it is difficult to evaluate the extent to which it benefited the economy.
The failure to account for the remittance fees was a huge blunder by the El Salvador
Government, as the benefits to the GDP from increased remittances were arguably the
most important reason for the adoption of Bitcoin. By essentially increasing the
remittance fees from the ATM fees, and therefore decreasing disposable income to
begin capital accumulation, they have practically removed this reason to use Bitcoin as
tender entirely. While some innovative infrastructure was implemented, it failed to
benefit the Salvadoran people, making this a failure on the innovation economics front
as well. The dedollarization effort also failed because the vast majority of Salvadorans
still prefer US dollars over Bitcoin, the effect of this from an economic standpoint still
remains to be seen. All-in-all, the implementation of Bitcoin as legal tender in El
Salvador did little to actually benefit the country from an economic standpoint, as certain
unbanked individuals failed to obtain enough wealth to properly begin the process of
capital accumulation from the lack of capital and increased cost of remittance fees
through Bitcoin, and the technology that came from the Bitcoin Law hardly benefited the
citizens at all.

Conclusion

In Conclusion, while the Bitcoin law was trumpeted as a means to bring El Salvador to
the forefront of economic innovation, the implementation of Bitcoin as legal tender was
an initial failure, leaving the country in a state of economic downturn. While the attempts
at bringing financial inclusion to the Unbanked in El Salvador were successful to a
degree, they lacked the necessary funding to be able to begin the process of capital
accumulation and thus increase the country’s GDP per capita. The attempts at lowering
remittance fees failed as the ATMs necessary to perform transactions had higher
transaction fees than other remittance companies like Western Union, which meant that
people couldn’t use the disposable income from higher remittances to grow their capital,
 12

thus not growing GDP per capita. The attempts at dedollarization also failed because of
the increased distrust in the currency after the massive drop in its value. And the
economy as a whole didn’t grow and even suffered from the implementation of Bitcoin
as legal tender.
Even though the implementation of Bitcoin as legal tender did place innovative
technological infrastructure that could advance the country, there are currently no
observable effects of this technology on the country’s economy. If anything, the world
will have to wait for this technology to actually benefit the country of El Salvador, and
future projects may need to happen before we see a significant level of innovation to
improve the economy.
This paper could have been improved had there been more analysis on the plans
for Bitcoin City, as this represents a significant possibility of a green city devoted to a
certain technological innovation like cryptocurrency, one that could produce great
technology that could improve the financial state of El Salvador or even the world.
However, due to the constraints of this investigation, I was unable to conduct a full
investigation into this topic.
 13

Bibliography

Claeys, Gregory, Demertzis, Maria, Efstathiou, and Konstantinos. Cryptocurrencies and

Monetary Policy. Accessed January 7, 2022.
https://www.econstor.eu/bitstream/10419/208013/1/1028805462.pdf.
Evaluates the possibility of Cryptocurrency becoming a legitimate alternative for
current currency, and goes into detail describing the importance of it changing it's
impact, reliability, and its function. It also delves into the specifics of how
Cryptocurrency would need to reliably adopt the three functions of money: a
store of value, and medium of exchange, and a unit of account.

Drechsler, Wolfgang, Rainer Kattel, and Erik S. Reinert. Techno-Economic Paradigms:

Essays in Honour of Carlota Perez. Anthem Other Series Economics. N.p.:
Anthem Pass, 2009. https://www.jstor.org/stable/j.ctt1gxpccq.
This source is valuable to the investigation because it helps to define innovation
economics. I can use this definition to properly analyze if El Salvador has
succeeded in implementing Bitcoin as legal tender.

"El Salvador Demographics." Worldometer. Accessed September 7, 2022.

https://www.worldometers.info/world-population/el-salvador-population/.
This source was useful for gaining statistical information on El Salvador which I
could use to properly analyze the effect Bitcoin has on the population.

Gorjon, Serjo. The Role of Crypto Assets as Legal Tender: The Example of El Salvador.
N.p.: Banco De Espana, 2021.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3944765.
A government official's report on the role of crypto assets as legal tender in
various circumstances. The official particularly uses Bitcoin legalization in El
Salvador to communicate cryptocurrency's role in the country's economy. This
source will be very useful in helping me understand the role of bitcoin and it's
advantages as a legal tender.

Hanke, Steve H., Nicholas Hanlon, and MIhir Chakravarthi. "Bukele's Bitcoin Blunder."
Studies in Applied Economics, June 2021. Accessed September 6, 2022.
https://sites.krieger.jhu.edu/iae/files/2021/11/Bukeles-Bitcoin-Blunder-Final.pdf.
This source delved into the technical problems with the Bitcoin Law, and how it
was fundamentally flawed to begin with. I used this source to help gain insight
into the quantitative aspect of the problems of the Bitcoin Law.

Hernandez, Joe. "El Salvador Just Became the First Country to Accept Bitcoin as Legal
Tender." NPR. Last modified September 7, 2021. Accessed September 7, 2022.
https://www.npr.org/2021/09/07/1034838909/bitcoin-el-salvador-legal-tender-offic
ial-currency-cryptocurrency.
This source is relevant to the investigation because it details the reasons for
Bukele's implementation of Bitcoin as legal tender in El Salvador. It also details
 14

how the news was received domestically and internationally. I can use this
information to analyze the effectiveness of the Bitcoin Law.

Hileman, Garrick, and Michel Rauchs. Global Cryptocurrency Benchmarking Study.

2017. Accessed January 7, 2022.
https://www.crowdfundinsider.com/wp-content/uploads/2017/04/Global-Cryptocur
rency-Benchmarking-Study.pdf.
A study of all Cryptocurrency-related activities within the world. It gives detailed
information on every major part of the world participating in these activities,
including demographics and tendencies of these people and regions.

Linares, Albinson. "A 'Bitcoin City' in El Salvador Inspired by Ancient Greeks? Here's a
Reality Check." nbcnews. Last modified November 30, 2021. Accessed
September 7, 2022.
https://www.nbcnews.com/news/latino/bitcoin-city-el-salvador-inspired-ancient-gr
eeks-s-reality-check-rcna6944.
This source contains information on Bitcoin City, and why Bukele wants to build
it. This is useful to the investigation because I can use the information in this
article to analyze infrastructure Bukele implemented for the Bitcoin Law.

Lloyd, Damian. "Bitcoin: Property, Money, Currency, or Legal Tender?" PhD diss.,
University of Queensland.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4051062.
A Students Doctoral Dissertation on the nature of Bitcoin. This sources will help
me to identify the workings of Bitcoin, and what it was originally meant for, which
will further help in my understanding of the legal tenderization of bitcoin in El
Salvador, and the analysis of other works upon it. This is a reliable source as it
has numerous credible citations and the analysis of Bitcoin itself is sound.

Macheel, Tanaya. "Bitcoin Tumbles Nearly 10% as El Salvador Adopts It as Legal

Tender." CNBC. Last modified September 7, 2021. Accessed September 8, 2022.
https://www.cnbc.com/2021/09/07/bitcoin-retreats-from-the-highest-level-since-m
ay-as-el-salvador-adopts-it-as-legal-tender.html.
This source is useful to the investigation as it provides information on the bitcoin
law's effect on the price of bitcoin, which I can use to analyze how the
tenderization of Bitcoin affected the economy.

Malik, Hamza Fareed. "El Salvador's Chivo Bitcoin Wallet Gets a New Software
Developer after Complaints about ID Theft and Disappearing Funds." Business
Insider. Last modified February 3, 2022. Accessed September 8, 2022.
https://markets.businessinsider.com/news/currencies/el-salvador-chivo-bitcoin-w
allet-new-software-developer-fix-issues-2022-2#:~:text=But%20Chivo%20users
%20have%20reported,social%20media%2C%20according%20to%20reports.
This source is valuable to the investigation because it provides information on
the flaws of the Chivo wallet, which I can use to help analyze the effect the
bitcoin law has had on the economy.
 15

Meaning, Jack, Ben Dyson, James Barker, and Emily Clayton. "Broadening Narrow
Money: Monetary Policy with a Central Bank Digital Currency." Broadening
Narrow Money: Monetary Policy with a Central Bank Digital Currency, no. 724
(May 18, 2018): 1-36.
https://deliverypdf.ssrn.com/delivery.php?ID=1520131040650260680900870640
2402410210107405104200706012608901709012210912700406607305502002
90971211260201200870141051130000810590160750340360640040240990211
2007501408704706707212402900407600406408706412102409912112712711
3070104095073106107081105125&EXT=pdf&INDEX=TRUE.
Discusses CBDC and its impact on the monetary transmission mechanism. It first
gives a general definition of a CBDC, and then goes into how it would affect the
process of monetary policy. It then concludes that it wouldn't change the
monetary policy that much at all, and may even benefit the system.

Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. October 31, 2008.
Accessed January 7, 2022. https://bitcoin.org/bitcoin.pdf.
Describes the motivation and workings of Bitcoin. Delves into the specifics of
how Bitcoin works.

Pymnts. "Bitcoin Daily: El Salvador Prepares to Launch Bitcoin Wallet in September;

After Visa's NFT Buy, 90 CryptoPunks Get Snapped up." PYMNTS. Last modified
August 23, 2021. Accessed September 7, 2022.
https://www.pymnts.com/news/bitcoin-tracker/2021/bitcoin-daily-el-salvador-bitcoi
n-wallet-september-visa-nft-buy-90-cryptopunks/.
This source detailed the chivo wallet that was implemented by Bukele to help the
salvadoran population adjust to using Bitcoin. I can use this source to properly
analyze the effect the chivo wallet had on the economy.

Reuters. "Majority of Salvadorans Do Not Want Bitcoin, Poll Shows." Euronews. Last
modified March 9, 2021. Accessed September 8, 2022.
https://www.euronews.com/next/2021/09/03/el-salvador-bitcoin-poll.
This source is useful because it provides information about the preference of
Salvadorans for bitcoin as tender, which I can use to analyze the effect of the
Bitcoin Law on the economy.

Roy, Avik. "In El Salvador, More People Have Bitcoin Wallets than Traditional Bank
Accounts." Forbes. Last modified October 7, 2021. Accessed September 8,
2022.
https://www.forbes.com/sites/theapothecary/2021/10/07/in-el-salvador-more-peo
ple-have-bitcoin-wallets-than-traditional-bank-accounts/?sh=567765e120b5.
This source is useful for the investigation because it provides context on how the
chivo wallet benefited the country of El Salvador, which I can use to help analyze
the effect the Bitcoin Law has had on the economy.
 16

Sachs, Jeffrey D. The End of Poverty. New York, NY: Penguin Press, 2005. Accessed
September 18, 2022.
http://www.economia.unam.mx/cedrus/descargas/jeffrey_sachs_the_end_of_pov
erty_economic_possibilities_for_our_time__2006.pdf.

Schopper, Alexander, and Patrick Raschner. "Crypto Currencys on a Bank's Balance

Sheets" [Crypto Currencys on a Bank's Balance Sheets]. Eumol Winter School
Edition, 1-23. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3996307.
This article is an in depth report of how crypto currencies work within a Bank.
This is relevant to the investigation because it provides insight into how
cryptocurrency's could hypothetically be controlled by a central bank of a country.

Vesvikar, Meghna. Case Studies from Social Science Research in India. Cambridge
Scholars Publishing, 2022. Accessed September 6, 2022.
https://www.cambridgescholars.com/resources/pdfs/978-1-5275-7699-5-sample.
pdf.
This source details the definition of the Solow economic growth model under the
Neoclassical school of economics. It applies the Solow theory to several
examples in India, which aids this investigation by providing an example of how
to conduct an analysis and analyze if a country is succeeding according to a
certain model of growth, which I can use to analyze the success of El Salvador
after the implementation of the Bitcoin Law.