El Salvador’s Crypto Future: What’s Next?
Just recently, Bitcoin became legal tender serving as official currency in El Salvador. According to it, the cryptocurrency is a legal form of payment throughout the country. It remains unclear what level of preparation the government has made for the law to go into effect four months after it was introduced by President Nayib Bukele.
Lawmakers have enacted a new tax agreement that allows citizens to pay their taxes in Bitcoin. This means that even public shops will be able to display prices in digital currency. The country hopes that this move will help draw tech firms to the Central American nation. Additionally, there are hopes of making dealing with finances much easier for those who would otherwise struggle to keep track of bank accounts for international transactions.
How will Bitcoin help El Salvador?
According to World Bank data reported by CNBC, remittances account for over 24 percent of El Salvador’s gross domestic product. This means that the move will make it easier and cheaper for migrants to send money to their families at home. Bitcoin being recognized as legal tender is also expected to provide better access to financial services for citizens who lack bank accounts. Information provided by Strike (a digital finance company) which helped with the logistics of the new law, stated that over 70 percent of the country’s “working population” does not have a bank account.
However, there are fears that the adoption of such a volatile currency like Bitcoin could harm Salvadorans and cause economic instability. Business owners would need to have in mind the big price swings which crypto can make and hedge their earnings. The fact that Bitcoin hit a historic high of over $63,000 in April before quickly losing nearly half its value in a crash in August shows how dangerous it can be to hold the coin. Earlier this year, the IMF (International Monetary Fund) warned about the risks bitcoin can pose to both the financial stability and monetary policy of the country.
Adoption of Bitcoin as а national currency
In June, legislation was passed that allows banks to give financial services to companies working with digital currencies. Recently, it began installing 200 ATMs around the country for users to be able to convert between their official currencies and cryptocurrencies. Shortly after that, the country launched its own digital wallet called “Chivo,” which awards users with $30 of Bitcoin when a purchase is made.
Despite all the buzz about Bitcoin’s place in the future, only a few businesses have been accepting it as a form of payment. Although people have been positive about working with Bitcoin, there isn’t a business out there yet that fully embraces it. For example, an article from Business Insider stated that companies were either not ready for Bitcoin at all or had no plans to start accepting it immediately.
There are certainly areas where Bitcoin could make a difference. Its low transaction costs, global availability, and secure network make it extremely attractive to people who want to send money abroad. One example of how this might happen would be Salvadorans living all around the world who work hard to ensure their families are taken care of back home. These funds are known as ‘remittances’. In most cases they use something like Western Union or Moneygram simply because they think it’s the quickest and cheapest way to transfer funds. This kind of transfer leads to high fees which many people can’t afford to pay.
If Bitcoin catches on, though, there could be a massive reduction in fees and costs related to sending funds around the world.
There is a lot of debate about the reasons behind the launch of this experiment, as well as many other issues like privacy protocols, political agendas, and money printing. It is clear that trust does matter when people are using currencies. Most people don’t like uncertainty, especially when they’re handing over their hard-earned money for potentially risky investments such as Bitcoin. So there’s certainly an argument to be made that without trust in its value remaining stable and predictable, it will not become comfortable to fully adopt.