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El Salvador: Bitcoin in El Salvador: Everyone for himself | Economy




Again in the eye of the hurricane, a non-stop for more than five years. The announcement by the government of El Salvador of the adoption of bitcoin as legal tender and the recent Basel regulatory proposal once again put on the table how complex it is to delimit the playing field of digital currencies and crypto assets. International coordination is increasingly necessary. The strong growth of this type of currencies and assets – of evident risk – has broken into the investment markets in the last decade. The lack of definition of a regulatory framework that provides these markets and platforms with greater guarantees reinforces interest and controversy.

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The case of El Salvador is paradigmatic. First, because precisely last week, after the announcement, bitcoin suffered a severe correction of 14%. It is the bet of a country as a testing ground, as one of the future “cradles” of bitcoin. It can encourage other digital investments in the future. Theoretically, this would favor a country with a high level of poverty and limited growth capacities. Although the world is for the brave, there are also myriad risks in this lab test. In the first place, adopting the currency of a third country – such as the US dollar – or a decentralized digital currency not backed by any central bank, reduces the room for maneuver for fiscal and monetary policies. The impact on public budgets and debt – already in the category of “junk bond” – is unpredictable. It generates great uncertainties and the possibility of speculation. Also, bitcoin does not work well as a means of payment. It is very likely that Salvadoran families, with low levels of financial education, are not well aware of the implications of such a volatile and opaque instrument. Much less to use it as an instrument to carry out daily transactions.




Part of the problem is the lack of specific and adequate international regulation. As (almost) always, regulation seems to start with the banking system. The Basel Committee on Banking Supervision has presented a proposal to regulate operations with “crypto” for financial entities that wish to have these instruments on their balance sheet, in which it requires a requirement of own resources as tough as that of non-performing loans. . The dissatisfaction of many of the banks is evident, since it limits the possibilities to compete with the new technological operators. If bitcoin, ethereum and the like are so dangerous, what is required is that these assets be regulated, beyond banking. Let’s not forget that they arouse the interest of all types of investors, large and small, individuals and institutional investors. They are complex instruments, especially for those who do not understand how they work. Therefore, it makes little sense that the leading specialists in the evaluation of investments and their corresponding risks are treated more onerously than the rest. It is time to take a step forward together and better understand the great possibilities and risks posed by instruments based on “blockchain”, so that a great opportunity does not become a “for himself who can”.




TAMMY SEWELL
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: [email protected] Phone: +1 513-209-1700

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