Accepting Bitcoin in Corporate Treasury - Lessons from El Salvador

Commentary

[The full report can be downloaded by subscribers at the foot of this article]

For a short period in September, El Salvador dominated the news headlines with its adoption of BTC as legal tender – and with the practical confusion which ensued, as this did not appear to have been well planned. We wanted to catch up with treasurers in the region to learn from their experiences, and see what may be in store in other countries, as cryptocurrencies will see wider adoption.

The conversation was rich and lively – I recommend reading it in full. A lot of details are still not clear: all participants appreciated the sharing.

A quick summary of the key learning experiences:

BTC has not become the sole legal currency of El Salvador. It exists alongside the USD, which remains the main currency. BTC is only used in retail transactions (B2C), where it represents about 12% of volume. None of our participants is currently transacting in BTC. 

The media hype was somewhat overstated – it seems the rush to open wallets was primarily caused by the USD 30 gift the government gave to everyone who opened a wallet. However, the practical problems are very real – the government wallet currently does not seem to be working.

As BTC is now one of two legal tenders in El Salvador, our participants are struggling with how to meet the requirement to accept BTC if the customer uses it to pay.

All participants have policies against using BTC, so they are urging their customers to pay in USD. To date, this has not been a problem.

Everyone is very concerned about the volatility of BTC, and so is very anxious to avoid being forced to hold a position in it.

There are two solutions available for accepting BTC:Use an Agent: 

Advantages: no need to open a wallet; the agent will convert to USD instantly on receipt; no need for connectivity between the wallet and your bank

Disadvantages: fees (not yet clear how much); counterparty risk; difficulty in matching receipts from the agent to customer payments; compliance issues – lack of traceability of funds, agent not considered by Compliance to be a bank.

Open a wallet directly:

Advantages: less fees (though some still exist – again not clear how much); the wallet can be specified to receive in BTC and convert instantly to USD; a QR code is issued to the payer – potentially, this could improve receivables reconciliations.

Disadvantages: controls – the main government wallet cannot be configured to require independent authorisation of transactions; volatility – borne either by the seller or the buyer; lack of connectivity between the wallet and the main international banks; lack of clarity on the origin of the funds

Conclusion: in many ways, this call was an eye-opener on what the adoption of a cryptocurrency means in practical terms. I strongly recommend treasurers everywhere to look at this, and start thinking through how they will approach it if they are required to do so.