Mon. Oct 25th, 2021
    Bitcoin, Salvador

    12 years — that’s how old bitcoin is this year. The first cryptocurrency went from a little-known coin to “digital gold” and became a part of not only the global economy but also politics.

    For example, the Parliament of El Salvador adopted the relevant bill by a majority vote in early June 2021. And a few days later, Nayib Bukele, president of the Central American republic mentioned above, commented on this event.

    Bitcoin Along With The US Dollar

    The calculation of the President of El Salvador is quite simple. On his Twitter on this occasion, he wrote that the maximum capitalization of bitcoin is $680 billion, and investing even 1% of these funds will increase the country’s GDP by a quarter.

    “I have sent a bill to Congress that will make bitcoin a legal tender in El Salvador along with the US dollar. In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” Euronews quoted President Bouquet as saying.

    Photo: Nayib Bukele, president of El Salvador. Source

    Why El Salvador?

    Why exactly El Salvador took the first step in the recognition of cryptocurrency at the state level? After all, there are enough advanced countries in the world, but their government holds the opposite point of view: cryptocurrency cannot be used as a means of payment and savings. The Netherlands and Italy have repeatedly stated this. By the way, El Salvador’s congressional vote on cryptocurrency coincided with a statement by Donald Trump, who emphasized what he considers bitcoin a fraudulent scheme designed to compete with the dollar on the world stage.

    70% of El Salvadorans do not have bank accounts.

    El Salvador is one of the poorest countries in Central America, with high levels of crime and social inequality. President Nayib Bukele, who was elected in 2019, has to look for non-standard solutions to complex problems that have accumulated over decades. It is due to the obvious advantages of bitcoin that Nayib Bukele expects not only to push the economy but also to stimulate the social development of the country.

    In addition, the dollar is the national currency of El Salvador, and the country is very dependent on the decisions of the US Federal Reserve. During the pandemic, Americans often turn on the printing press, increasing inflation, which hurts the economy of El Salvador. While the US copes with the costs of such decisions, for El Salvador inflation is a disaster. The introduction of bitcoin, according to Bukele, will reduce this dependence to almost nothing.

    Another important point: according to the government of El Salvador, the country’s economy is heavily dependent on remittances from abroad: about 20% of gross domestic product. Most of the money (more than $4 billion) is transferred by Salvadorans who work in the United States. Nayib Bukele believes people lose a significant part of this money due to bank fees. Introducing bitcoin will minimize these costs. In other words, the Salvadorans will bring not 20 percent but 35 percent of GDP into the country.

    Another important argument in favor of bitcoin: 70% of Salvadorans do not have bank accounts. This means that 7 out of 10 Salvadorans pay exclusively in cash. Most of this money is excluded from the national financial system. Cryptocurrency will largely solve this problem.

    Dollars For Bitcoins: Can Be Exchanged Or Not

    Bukele plans to create a cryptocurrency wallet based on the Development Bank, the value of tokens in which will reach 150 million dollars. This will allow the fast exchange of cryptocurrency for dollars.

    Bitcoin Is On The Guard Of Order

    Crime is the scourge of El Salvador. Corruption should also be added to crime, which puts an end to any social and economic reforms. Together, they are held on the very cash dollars that remain out of sight of the fiscal authorities. E-money, according to Salvadorans, can make the financial system more transparent and therefore less corrupt.

    “We Forgot About The Ravines”: Predictable problems

    “The use of cryptocurrency at the state level is not something that an international financial organization is ready to help with since it considers the first digital coin to be insufficiently transparent,” RBC shares information.

    Any Objections?

    IMF spokesman Jerry Rice said that there are a number of economic, financial, and legal difficulties with the recognition of bitcoin as an official means of payment in El Salvador. Famous American economist Steve Hanke clarified, “adopting bitcoin as a means of payment could destroy El Salvador’s economy”.

    IMF spokesman Jerry Rice said that there are a number of economic, financial, and legal difficulties with the recognition of bitcoin as an official means of payment in El Salvador. Famous American economist Steve Hanke clarified, “adopting bitcoin as a means of payment could destroy El Salvador’s economy”.

    As noted above, El Salvador does not have its own currency, the population uses US dollars. Therefore, according to Steve Hanke, El Salvador’s economy will inevitably collapse because the dollars will be taken abroad by converting them into bitcoin. In simple words, the country will have nothing to service its external debt, and its citizens will have nothing to pay for vegetables on the market. And even if the government of El Salvador tries to convert bitcoins into dollars, it will still lose. If you try to cash out, you will have to pay a fairly significant fee.

    By the way, the US government was skeptical about the idea of El Salvador to make cryptocurrency legal tender. Among the arguments is the frequent use of bitcoins by terrorists and drug dealers. By the way, this is a fairly weighty argument in favor of those Salvadorans who believe that bitcoin will not only not help fight crime and corruption, but will also greatly stimulate them.

    ________________________

    The social and economic experiment that is happening in El Salvador is curious in every way. The skepticism of the World Bank and bankers, in general, is understandable — cryptocurrency can cause a serious blow to their income, so criticism of Bukele’s idea, although reasoned, can not be considered objectively until the end. On the other hand, the risks that El Salvador assumes with the introduction of cryptocurrency as an official means of payment are also very serious.

    Bitcoin is a virtual asset that is not tied to the real economy and the value of the cryptocurrency is constantly fluctuating. However, if the experiment still succeeds, it can radically change the global financial system — for example, the US dollar may well lose its status as the main reserve currency of the world.

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