Is bitcoin good for transferring money?

Exchanging $200 for bitcoin costs between $2.99 to $7.67 at Coinbase, depending on whether the transaction is funded using PayPal, ACH, or debit, Mikula says. The exchange may charge an additional spread for the transaction (the gap between the bid and offer prices for bitcoin on its exchange). There’s also a network fee (paid to the crypto miners who process transactions on a blockchain) to send bitcoin from Coinbase to a Chivo wallet in El Salvador, which runs around $3. El Salvador’s bitcoin wallet lets users switch between the US currency and bitcoin at no cost.

By contrast, a person can send $200 from the US to El Salvador using Western Union’s mobile wallet, called Tigo, at no cost and in minutes, according to the company’s website. Mikula speculates that Western Union may be willing to eat the transaction costs (debit/credit interchange) because fewer remittances are sent this way. Western Union charges a hefty fee for transactions using physical cash: it costs $9 to $18 to send $200 in cash from the US to El Salvador. This is probably a popular way of sending money, as around 70% of the people there don’t have a bank account. (MoneyGram says it also has a channel for sending remittances between bank accounts that doesn’t charge fees.)

Strike, a payments application, says it allows users to make bitcoin transactions quickly and at a minimal cost. By using the Lightning network, Strike says users can avoid the transaction fees charged by bitcoin miners. Strike also says it will exchange US dollars for bitcoin for a 0.3% fee or even less. Those offerings could make remittances using bitcoin more competitive with other offerings—but not cheaper. Strike didn’t provide comment when asked for more detail about the payment application’s offerings.

Chivo could still help El Salvador’s unbanked

Bukele is correct about at least one thing: Remittances are a critical lifeline for millions of people in El Salvador. Around 18% of households receive them, taking in an average of about $195 per month, according to a report from researchers at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise. They found that remittance costs there absorb about 2.95% of transactions, the lowest level of any nation in the Latin American-Caribbean region.

And they, too, found that sending remittances using bitcoin’s blockchain rails is more expensive than the systems already in place. Their analysis is partly based on the assumption that people in El Salvador want paper greenbacks, not bitcoin, and will have to pay up a crypto ATM to withdraw the hard currency. (They note that the coastal town of El Zonte, El Salvador, made bitcoin a local currency in 2019, but it didn’t catch on.) “At present, traditional transfer methods are the cheapest way to make remittance payments,” they wrote.

Bukele’s controversial bitcoin gamble has a number of serious risks for El Salvador, including the potential to undermine financial stability. That said, there could be some upside if the Chivo wallet succeeds in making digital payments and mobile wallets into the hands of the country’s vast majority that is unbanked. That infrastructure actually could reduce remittance costs—without using bitcoin.

The story was updated on Sept. 22, 2021 in paragraphs five and six to include additional information about remittances. 

📬 Sign up for the Daily Brief

Our free, fast, and fun briefing on the global economy, delivered every weekday morning.