El Salvador, a Central American country, has the potential to make history by becoming the first sovereign government to accept Bitcoin as legal cash alongside the US dollar. President Nayib Bukele has announced that a bill to recognize Bitcoin as legal cash will be sent to Congress within the next week.
According to polls, most Salvadorans do not want Bitcoin and do not understand how it works. As El Salvador prepares to become the first government in the world to recognize Bitcoin as legal cash on September 7, there is rising skepticism around the whole concept.
The proposal is being promoted by the administration as a strategy to encourage economic development and job creation. According to polls, Salvadorans are unprepared for the change, and the World Bank has advised against it.
SO, WHY IS EL SALVADOR USING BITCOIN AS A FORM OF PAYMENT?
The tiny country shares borders with Honduras and Guatemala, which have their currencies, the Lempira and Quetzal, respectively. El Salvador, on the other hand, adopted the US dollar as legal cash in 2001 since it lacked its monetary policy. Panama and Ecuador, like the rest of the world, have embraced the change
HOW THE CRYPTOCURRENCY WILL BE USED?
PAY TAX: All that being legal tender means is that Bitcoin could be used to pay taxes (debt to the government) or court-ordered payments (debts to private creditors), but there would still be legal issues because the debts would be in Salvadorian dollars, and the law would have to figure out how to determine the relevant exchange rate.
SEND REMITTANCES: It has been praised that bitcoin has the potential to enable Salvadorans working abroad to send remittances home while stating that the US dollar will remain legal cash. El Salvador does not have its currency in practice.
ECONOMIC UPLIFTMENT: The plan was to construct a bitcoin mining hub centered on the country’s geothermal potential. El Salvador will also grant citizenship to those who can prove they have invested in at least three bitcoins. For the country, it will bring financial inclusion, investment, tourism, innovation, and economic prosperity.
WHY PEOPLE ARE DICEY ABOUT IT:
Experts are split on whether El Salvador should adopt Bitcoin, with some citing its usage in money laundering and criminal activities as a long-term opportunity despite current financial constraints.
- The fundamental problem with Bitcoin is that it is currently ineffective as a means of exchange, and it is extremely difficult for it to be accepted for mainstream transactions. On top of that, it is impossible to hold it as a store of value because its price varies considerably.
- Bitcoin and other cryptocurrencies are unregulated because they are decentralized, making them vulnerable to speculation and manipulation.
- The primary uses of Bitcoin include speculation, currency evasion, money laundering, and criminal transactions making it very questionable to be made as a legal tender in the country
Many people still shy away from using cryptocurrency because internet access is patchy, bringing attention to a large digital divided. If something so basic that advocates the whole system is faulty then depending on it to maintain the whole economic ecosystem is not only questionable but also give a thought to think the whole process through.
Accepting digital currency as a legal tender is a major decision to be taken by a country. The natives also have to be educated more about the concept, to help the concept flowing in. Crypto has its own risk and market manipulations that give a major budge, but regulating it can solve this problem to a major extent.