El Salvador, a Central American country, recently became the first in the world to pass a new law to adopt Bitcoin as a legal tender. The announcement was made after Congress approved President Nayib Bukele’s proposal to embrace the cryptocurrency in the country, on June 9. This was a move that delighted digital currency’s supporters globally.
Several reports estimate that 70% of El Salvador’s population are unbanked, with remittance from Salvadorians in the diaspora accounting for an annual inflow of $6 billion. Bukele is optimistic that the new development will boost financial inclusion in the country.
“It will bring financial inclusion, investment, tourism, innovation and economic development for our country,” Bukele remarked in a tweet before the congressional meeting on Wednesday.
How Bitcoin will impact El Salvador’s economy
Prior to this development, El Salvador adopted the US dollar as its official currency. However, per reports, dollarization didn’t have much impact on the country’s economy.
“El Salvador’s economic growth since adopting the dollar as the official currency in 2001 has not been any higher than it was during the years leading up to dollarization. In fact, El Salvador saw higher growth rates in the years prior to its adoption of the dollar. It is difficult to directly attribute the country’s failure to obtain a higher growth rate solely to dollarization, but it most likely did play a role.” an excerpt from Voices El Salvador reveals.
Given the prevailing circumstances, crypto enthusiasts in the country share a similar optimism with the President, that Bitcoin supply in the country will strengthen its economy.
On the Global front
It’s still early to determine if other countries in the world will be quick to embrace crypto as a means of legal payment in El Salvador. For the most part, economic analysts and government officials around the world are still worried about the insecurity and volatility of cryptocurrencies. While most countries are trying to work around regulatory frameworks, other nations have instituted an outright ban on the use of crypto, terming it illegal. Iran, Ecuador, Morocco, and Bangladesh, and some of the countries in the world have clampdowns on crypto, while others like Nigeria and China are restricting the use of digital currencies by instituting rigid conditions. Yet, China has created its own digital currency which is controlled by its central bank and Nigeria’s Central bank has hinted at the possibility of launching a digital currency before the year ends.
Critics are concerned that having a government-controlled currency contravenes the original purpose of cryptocurrency, which is decentralisation. But opposing arguments from regulators around the fraudulent use of digital currencies are too vivid to ignore. Crypto crime hit $1.7bn in 2018 according to CipherTrace’s annual Crypto Anti-Money Laundering and Crime Report and climbed 165% to $4.5bn in 2019. Although there was a sharp decline in 2020, where $1.9bn was recorded in crypto theft, the losses recorded year after year are bad enough to convince governments of cryptocurrencies’ insecurity.
The bigger picture
While the concerns around security loopholes of cryptocurrencies persist, private organisations spearheading the adoption of digital currencies are intensifying efforts to bolster the security of blockchain systems. Crypto exchanges like Bitmama, Binance, and Paxful are prioritizing secured trading and wallet safety for their users.
In the long run, governments like El Salvador are seeking big opportunities beyond government-owned currencies to drive the massive adoption of blockchain-powered solutions to solve problems related to the economy and improve education, healthcare, and the standard of living of citizens. The goal is to increase the overall efficiency of the nation’s economic development and reduce the costs of technology initiatives and other essential government services.