OTHER developing nations could soon follow in the footsteps of El Salvador by adopting Bitcoin as a legal tender, experts say.
The nation’s president Nayib Bukele passed a bill in June that stated that from September 7, Bitcoin can be used in any transaction and all businesses must accept the e-currency as payment.
The law also states that tax contributions can be paid via Bitcoin and exchanges in the cryptocurrency will not be subject to capital gains tax.
Under the new law, El Salvador will “promote necessary training and mechanisms so that the population can access [Bitcoin] transactions.”
However, those who do not have access to technologies that can carry out Bitcoin are excluded from being required to accept it.
The US dollar and Bitcoin are now the country’s official currencies.
It’s the first time Bitcoin has been adopted as a legal tender in a sovereign nation.
Proponents of El Salvador’s decision have hailed the move as the progressive future of money.
Critics, however, have derided it as little more than a publicity stunt by Bukele.
More troublingly, they say the move poses substantial financial risks to ordinary Salvadorians and their country, as cryptocurrency is an infamously volatile market.
Indeed, the nation’s cryptocurrency rollout got off to a rocky start yesterday with Bitcoin plunging more than 10 percent, seeing its value drop from $52,5000 to $44,000, on its first day as El Salvador’s official currency.
But Bukele has argued that adopting Bitcoin will allow more Salvadorians, about 70 percent of whom don’t have bank accounts, into the formal economy.
“Who’d be against something that helps the people and doesn’t do any harm?” he said of his critics. “They’re probably politically motivated.”
He also argued that it would make it faster and cheaper to receive money from family living abroad.
El Salvador’s economy relies heavily on the remittance market, representing around 20 percent of the nation’s GBP, or around $6 billion annually, according to Forbes.
Around 95 percent of remittances are sent from Salvadorans working in the US to their families back in their native country.
But service charge fees for such transfers can make up a significant chunk of the portion sent, particularly with smaller transfer amounts.
Maggie Wu, the CEO of blockchain venture capital firm Krypital Group, says challenges in Bitcoin adoption do exist, however told Forbes she’s optimistic about its future.
“I believe that Bitcoin adoption is conceivable, especially in the relatively small developing countries with inadequate monetary systems where the recognition of digital currencies there is relatively high,” she said.
“The blockchain-related infrastructure that can carry digital currencies in most Central and South American countries and regions is not complete, including wallets, exchanges, etc. This is also the direction of our investment focus. We think there is huge potential and value here for fostering crypto adoption throughout the region.
“El Salvador’s adoption of Bitcoin has brought concern from officials in developed nations as well as from international NGOs who often describe Bitcoin as having few redeeming public interest attributes.”
Despite the risks, a number of nations have already hinted that they too may soon open doors to crypto and deviate from the cautious approach to the e-currency taken by many of the world’s central banks.
Paraguay is viewed by many as the next likely candidate for Bitcoin adoption.
That belief comes, in part, as a response to local congressman Carlos Rejala drafting legislation to make the nation more attractive to the crypto market.
Rejala’s plans will allow crypto firms to finance their operations in Paraguay using digital currency, as well as remit dividends abroad and capitalize any crypto profits into local banks, ProactiveInvestments.com reports.
Rejala also said that the country’s low electricity, costs, and the fact it sources most of its power from renewable energy, is a key advantage amid concerns about the environmental impact of crypto mining.
Should the bill pass, Rejala previously suggested he’d seek to present another bill to make Bitcoin legal tender later this year.
PANAMA AND MEXICO
When it comes to Central America, Mexico and Panama are considered potential Bitcoin adopters in the near future.
If Panama were to adopt the currency, it could have global implications considering its status as a critical shipping lane.
Like Paraguay, Panama has introduced a bill to regulate the use of Bitcoin within the nation. The bill would recognize Bitcoin as a national alternative payment method.
Panamanian Congressman Gabriel Silva, who authored the bill, tweeted on Tuesday: “Today we present the Crypto Law. We seek to make Panama a country compatible with the blockchain, crypto assets, and the internet.
“This has the potential to create thousands of jobs, attract investment and make the government transparent.”
Meanwhile, Mexico has previously held discussions regarding the adoption of some form of digital currency.
El Salvador’s decision could ultimately shift favor towards Bitcoin rather than alternative crypto or a Central Bank Digital Currency (CBDC).
Earlier this week, Grupo Elektra, a leading banking and retail company in Mexico, threw its support behind Bitcoin by introducing the Bitcoin Lightning Network as a payment method.
But Mexico’s central bank quickly shot down the plans, warning: “The country’s financial institutions are not authorized to carry out and offer to the public operations with virtual assets, such as Bitcoin, Ether, XRP.”
Many of the country’s lawmakers remain opposed to Bitcoin, despite grappling with high inflation rates due to the continued devaluation of its currency.
Venezuela is another likely candidate. The country unveiled its own cryptocurrency – the Petro – back in 2018 but efforts to get the currency off the ground have stalled.
That’s partly due to ongoing US sanctions against the oil-rich, but volatile country.
Bitcoin may be adopted by the country as a stable alternative to Petro, as it’s already a widely accepted and proven blockchain payments network.
MORE POTENTIAL SUITORS
Other potential adopters of Bitcoin may soon include the likes of Brazil, Argentina, and Nicaragua, all of which have either voiced support for El Salvador’s adoption of Bitcoin or have politicians and populations that are broadly supportive of cryptocurrency.
Jeff Bandman, a cryptocurrency and digital assets expert, told Forbes: “For some countries seeking an alternate path to pegging their currency to the dollar, sterling or euro, an intriguing choice is whether to outsource monetary policy to the Bitcoin algorithm.
“Since Facebook introduced the Libra proposal for a global stablecoin over two years ago, policymakers have focused considerable attention on the risks of a stable coin issuer with billions of potential users conducting or exercising undue influence over monetary policy.
“Because of Bitcoin’s price volatility, it has been largely discounted by sovereigns until recently, missing the potential benefits for consumers and businesses who rely on its transparent algorithm, which in some instances, maybe more predictable than another country’s central bank.”
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