Although not specifically mentioning El Salvador, the IMF has recently warned countries not to adopt Bitcoin as legal tender, adding that the dollar or the euro was more “alluring” than a cryptocurrency. However, the Bank of America published a report stating how the adoption of Bitcoin can benefit El Salvador.
Despite the high ‘allure’ of the dollar or the euro, two currencies that are in a race to the bottom as they continue to be devalued, El Salvador is continuing on a path that will give its citizens the option of using Bitcoin or the dollar for transactions.
‘Transactions’ probably isn’t the key word here, as it’s highly unlikely that El Salvadoreans will use Bitcoin for every-day purchases. What some will do though is to buy Bitcoin and hold it, and by doing this, at least ensure that this part of their wealth will endure and will hold/increase value over the longer term.
The IMF is a leviathan of a financial organisation and will undoubtedly use its power and influence to try and bully El Salvador into leaving the path to financial choice it has chosen. With a $1 billion loan to El Salvador already on the table and waiting to be agreed, the IMF will have some leverage.
However, no less than the Bank of America has come to the aid of El Salvador. BoA analysts published a report recently that outlined 4 points on how the adoption of bitcoin as legal tender by El Salvador can actually benefit it.
1. Reducing remittance costs
This is actually quite big for a Latin American country. Many nationals go abroad and work there, sending part of their wages home to keep their families. Companies like Western Union and MoneyGram have long taken advantage of charging huge fees in order to allow poor overseas workers to transfer currency back to their homeland.
By using bitcoin to transfer money, workers can save around 10% of the transaction costs according to the Bank for International Settlements. This could work out to the equivalent of 2.4% of a Central American country’s GDP.
2. Democratisation of finance
More than 70% of the adult population of El Salvador does not have a bank account, and therefore has no access to any funding for a potential business. According to the BoA report, adoption of bitcoin would democratise access to electronic payments.
3. Consumer choice
Innovation around cryptocurrency offers far more choice to El Salvadoreans. At the same time, businesses have the choice of accepting bitcoin or not.
4. Potential to attract foreign investment
With all the infrastructure that will potentially be built around a bitcoin economy, El Salvador is very likely to attract overseas investment, especially in the areas of ATM manufacturers, bitcoin miners among others.
It will be intriguing to see how El Salvador fares as the first country in the world to accept bitcoin as legal tender. To be the first offers massive risks as well as the potential of huge benefits should it be successful.
Latin American countries have suffered terribly over many years from corrupt governments that have pocketed the wealth of their citizens. These governments have been aided and abetted by foreign banks and other financial organisations.
Future regulation of cryptocurrencies needs to be fair and thoughtful. A level playing field with fiat currencies is all that is asked. Personal freedom and liberty of choice is what is at stake at the end of the day.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.