History in the making as El Salvador adopts Bitcoin as legal tender
As El Salvador becomes the first country in the world to make Bitcoin official legal tender on Tuesday, I will explain to BBC News tomorrow why it could help boost the country’s economic growth and jobs.
The smallest country in Central America will adopt the world’s largest cryptocurrency by market cap as national currency alongside the U.S. dollar.
As it stands, outside of the U.S. and its territories, there are seven other sovereign nations using the U.S. dollar.
El Salvador is making history by making this bold leap into the inevitable digital future of money, and I’m confident that other countries, particularly other Central and South American nations, will be standing up and taking notice.
Of course, there are risks linked to president Nayib Bukele’s move, such as the country running out of dollars and institutions like the International Monetary Fund potentially not viewing a country favourably that has adopted Bitcoin.
Indeed, these risks led citizens to take to the streets in protest last week against Bitcoin being adopted as an official currency.
Nevertheless, I think El Salvador’s Bitcoin move should be granted a prudently optimistic welcome for five main reasons.
First, El Salvador choose to become dependent on the U.S. dollar to complete transactions, yet this reliance brings its own, often very expensive issues. El Salvador’s government cannot print its own money, nor can the economy benefit from the U.S. Federal Reserve’s money printing agenda. As such, El Salvador has to earn or borrow the dollars it requires.
Of course, a stronger U.S. dollar can have a devastating effect on emerging-market economies, such as that of El Salvador, so by adopting a cryptocurrency like Bitcoin as legal tender, they have a currency that isn’t influenced by market conditions, or from another country’s economy.
Second, whilst central banks have been devaluing their currencies, Bitcoin’s supply is limited, and new coins are mined at a declining rate too. As such, El Salvadorans may find Bitcoin gives them greater purchasing power when they buy from overseas as imports will be cheaper.
Third, the cost of remittances could be lowered with the country’s Bitcoin adoption, as well as being made faster and more straightforward, compared to bank wires or money transfer services.
Fourth, by diversifying the country’s dollar reserves into Bitcoin, there could be further opportunities to earn yield, meaning the size of the reserves would grow.
Lastly, fifth, El Salvador could benefit from substantial foreign investment and capital inflows as digital asset organisations move to the Bitcoin-friendly nation.
Naturally, if this move is a success, it will represent a massive leap for Bitcoin’s mass adoption as other countries follow suit.
Other countries such as Guatemala and Honduras – with their similar dependence on remittances – will likely adopt Bitcoin should El Salvador’s move run smoothly, resulting in greater economic growth, stability and financial inclusion.
We’re welcoming this huge step by El Salvador which could make an immensely positive impact on the country and its people.
This is indeed a landmark moment in the crypto evolution.