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Bitcoin and its arrival in El Salvador | Datalab

On September 7, the law that forced all businesses and companies in El Salvador to accept bitcoins as a means of payment came into force, thus becoming the first country to officially introduce a cryptocurrency into its economy. The change is not mandatory, since the US dollar is still in force, but now the population can choose the currency in which to make payments and in which to keep their savings.

This has been a milestone in the objective of Bitcoin to become a global means of payment, however, it is important to weigh the financial implications that this change brings, some of which already occurred with the dollarization of 2001 and now have been accentuated:

  • Waiver of own monetary policy. Since the arrival of the dollar, El Salvador ended its monetary sovereignty in favor of the policy of the US Federal Reserve (FED). With the adoption of Bitcoin, you are not only exposed to the evolution of the American economy, but also to the turbulence of the financial markets, which is especially pronounced in the cryptocurrency sector. This will further hamper the local government’s roadmap in drawing up its fiscal policy and general budgets, and could have a similar effect on businesses and families.

  • Lack of transparency with the population. The initiative has been more aimed at potential investors than the Salvadoran population. This has not sat well, and in fact there have been several demonstrations. There are, in fact, many doubts about the impact that a measure of this depth may have in the medium term, which only makes its adoption more difficult.

  • Uncertainty about the potential benefits. The arrival of Bitcoin has been announced as a way to improve access to payment systems for the poorest sector of the population, however, the high volatility of the currency makes it extremely risky for those who do not have a financial cushion. support them. Additionally, it is intended to capture the commissions of remittances arriving from other countries (for El Salvador these commissions amount to more than 500 million dollars per year), but, in reality, it was already possible to make these remittances in bitcoins before, so it is not clear the real benefit.

  • Bitcoin’s own risks. The cryptocurrency incorporates risks that until now did not exist with the dollar, and that now must be taken into account by the population when making their consumption, saving and investment decisions. Among these risks are the extreme volatility of the currency, the lack of appropriate infrastructures for its use (there have already been problems with “Chivo”, the wallet developed by the government) and the financial ignorance of the population.

For all the above, it is not at all clear that the adoption of Bitcoin as an official means of payment is the solution to the financial problems of an economy like El Salvador. In fact, the first consequence of the measure is that, in reality, the arrival of Bitcoin only increases financial dependence, not on the economic policy of a great power with a stable currency (as happened with dollarization), but of a cryptocurrency with intrinsic risks, both technical, legal and financial, and on which there is no similar case on which to compare.

Therefore, and also taking into account the lack of international support that has been received, it seems that for the moment the measure will have more media impact than real, and that it will not be until some time later when it will be possible to analyze whether it has really been a success, or if, on the contrary, risks have wiped out the possible opportunities of Bitcoin’s first litmus test.

All articles on this blog describe the opinion of the author only and do not represent the position of any company or financial institution.

Tammy Sewell is our Writer and Social at OICanadian.com. Tammy loves sports, she writes our celebrities news. She spends time browsing through several celebs news sources as well the Instagram. Email: Tammy@oicanadian.com Phone: +1 513-209-1700

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