In 2021 in El Salvador, remittances of money sent from abroad increased by 45%.
In the first half of 2021, El Salvador received $3.6 billion in remittances. An increase of 45.3% compared to previous years.
They account for 23% of the country’s GDP and benefit about 360,000 households, with 95.4% sent from the U.S.
El Salvador needs #Bitcoin
— Documenting Bitcoin (@DocumentingBTC) July 27, 2021
This was reported by Documenting Bitcoin on Twitter citing data on remittances from the manager of international technological and economic affairs of El Salvador.
In total, these remittances, 95% from the USA, would represent as much as 23% of the entire GDP of the country, and would benefit about 360,000 families, or an important percentage if compared to the six and a half million total inhabitants.
Historically, according to data from the World Bank , the growth in the value of remittances received by El Salvador in proportion to GDP has been growing since 2016, after reaching a peak in 2007, i.e. before the great global financial crisis.
Although there was already a big growth in 2020, with this percentage going from 21% to 24%, 2021 would have marked an even more important increase.
It is possible that the adoption of bitcoin also contributed to this increase.
In fact, it is known that in 2021 the use of apps for the exchange of BTC literally exploded in the country, in particular those based on Lightning Network that allow practically immediate transfers and with negligible costs.
Unfortunately, neither the number nor the volume of transactions made on LN are publicly available data, so there is no way to calculate or retrieve this data. However, in 2021 there was a real surge in the use of Lightning Network, with the number of channels to date increased by 61% compared to the beginning of the year, and the volume of immobilized BTCs almost doubled, from 1,058 to over 2,000.
Furthermore, it is no coincidence that at the beginning of June El Salvador decided to adopt bitcoin as the legal tender currency in the country, alongside the US dollar, although this law will only become effective from September.
On the other hand, if a substantial part of the new remittances arriving from abroad is sent in BTC, via LN, it would make perfect sense to be able to spend these bitcoins in the country without necessarily having to change them into dollars. It will then be the merchants who will probably make the exchange using special platforms that also allow, if desired, the immediate exchange at market price.
It should be remembered that for those who receive such remittances, if they were sent in dollars, a negligible percentage of the funds sent do not reach their destination because they are retained by the inevitable intermediaries. With bitcoin on Lightning Network, on the other hand, almost 100% of the funds sent reach their destination, and there is no need to rely on intermediaries.
Moreover, there are also other countries in the world in similar situations, so if starting from September the real experiment underway in El Salvador should prove to be successful, it is conceivable that other countries in similar situations could also take similar initiatives.