First country in the world to do so
The Central American nation of El Salvador created history today (September 7), becoming the first country in the world to adopt a cryptocurrency as mainstream tender.
However, there is strong disagreement among experts on the outcome of the move. As of today, the Latin American state adopted Bitcoin as legal tender.
Bitcoin is now officially in circulation in El Salvador alongside the US dollar, which is already used in seven other sovereign countries. El Salvador had announced on June 9 that it would be introducing Bitcoin into its mainstream economic system.
This announcement has divided global experts on the potential outcome of the move.
Differing views on the matter
Some thought leaders believe the initiative will raise the profile of the world’s leading cryptocurrency, resulting in better regulation of decentralised and democratised finance. However, others have taken a more skeptical stance, arguing that cryptocurrency is too unstable to be used as mainstream tender.
Fintechmagazine.com reported that the risks outlined by some economic experts have even prompted a number of El Salvadorans to take to the streets in protest against the adoption of Bitcoin, as an official currency. In addition, those against the decision say El Salvador’s government has framed the directive as a solution that will boost economic development and jobs.
However, Fintechmagazine.com said local opinion polls show that Salvadorians are not happy about the change while highlighting the World Bank’s warning against its adoption. Some analysts have described the decision to go with bitcoins as legal tender as an “attention-seeking move” from an “authoritative regime”.
However, if successful, the move is likely to result in other countries adopting cryptocurrencies into their mainstream economies.
Arguments in favour of Bitcoin adoption
· El Salvador is already reliant on a first-world currency which is problematic in terms of lending and borrowing.
· Being reliant on the US dollar hinders emerging economies.
· Adopting Bitcoin could reduce the cost of remittances.
· El Salvador could potentially increase its own reserves through the adoption of Bitcoin.
· Using the cryptocurrency could increase foreign investment in El Salvador.
According to Nigel Green, chief executive and founder of deVere Group, a leading financial services giant, the move will be groundbreaking in terms of greater adoption of Bitcoin.
He explained that, “El Salvador is making history with a bold jump into the future of money, which is inevitably digital by officially recognising Bitcoin as legal tender, together with the US dollar.
Green contended that “other countries, in particular other Central and South American nations, will be watching with great interest to see if the experiment works to shore up El Salvador’s shaky economy. There’s no doubt that there are major risks attached to the decision made by the young maverick president, Nayib Bukele”.
According to the financial services company boss, “…there is a possibility that El Salvador could run out of dollars and that institutions, such as the IMF, might not look favourably on a nation that has adopted Bitcoin”.
Green is predicting that, by diversifying the nation’s dollar reserves into the cryptocurrency, there could be additional opportunities to earn yield, meaning the size of the reserves would grow. El Salvador, he said, could benefit from significant foreign investment and capital inflows as digital asset organisations are likely to relocate to the Bitcoin-friendly nation.
If the adoption proves to be a success, it will be a massive step for Bitcoin’s mass adoption as other countries will follow El Salvador’s lead. Green made the point that, “due to their similar reliance on remittances, amongst other factors, other nations, including Panama, Guatemala, and Honduras, could also adopt Bitcoin should the process in El Salvador run smoothly and there’s greater economic growth, stability, and levels of financial inclusion as a result.”
The deVere Group founder and chief executive concluded that, “we’re giving a measured welcome to the move that could make a hugely positive impact on this Central American nation and its population. This is truly a landmark moment in the evolution of digital currency”.