In 2021, remittances sent from abroad in El Salvador 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 is reported by Documenting Bitcoin on Twitter citing data on remittances from El Salvador’s head of international technological and economic affairs.
In total, these remittances, 95% of which come from the US, are said to account for 23% of the country’s entire GDP, benefiting some 360,000 families, a large percentage compared to the country’s total population of six and a half million.
Historically, according to World Bank data, the growth in the value of remittances received by El Salvador as a proportion of GDP has been increasing since 2016, after peaking in 2007, before the great global financial crisis.
Although there was already a large increase in 2020, with this percentage rising from 21% to 24%, 2021 was expected to show an even larger increase.
It is possible that the adoption of bitcoin also contributed to this increase.
It is well known that in 2021, the use of BTC trading apps exploded in the country, particularly those based on the Lightning Network, which allows for almost immediate transfers at minimal costs.
Unfortunately, neither the number nor the volume of transactions carried out on LN are publicly available, so there is no way to calculate or retrieve this data. However, in 2021 there has been a real surge in the use of the Lightning Network, with the number of channels increasing by 61% so far this year, and the volume of BTC locked almost doubling from 1,058 to over 2,000.
It is also no coincidence that at the beginning of June, El Salvador decided to adopt bitcoin as legal tender in the country, alongside the US dollar, although this law will only become effective in September.
On the other hand, if a large proportion of the new remittances arriving from abroad are sent in BTC, via LN, it would make perfect sense to be able to spend these bitcoin in the country without necessarily having to exchange them for dollars. The merchants will probably then carry out the conversion using special platforms that also allow immediate exchange at market prices.
It is worth remembering that for those who receive such remittances, if they are sent in dollars, a not-insignificant percentage of the funds sent do not reach their destination because they are retained by the inevitable intermediaries. With bitcoin on the Lightning Network, however, almost 100% of the funds sent reach their destination, and there is no need to rely on intermediaries.
In addition, there are other countries in the world experiencing similar situations, so if the actual experiment in El Salvador proves successful in September, it is conceivable that other countries in similar situations could also pursue similar initiatives.