El Salvador could become the first country to recognize a cryptocurrency as legal tender. According to CNBC, the country’s President, Nayib Bukele, announced that he will propose a bill next weekthat would make Bitcoin legal tender in the country, alongside the U.S. dollar. The government will work with digital wallet company “Strike” to create a financial framework around the digital currency format.
Strike founder Jack Mallerssaid Bitcoin would help countries like El Salvador protect themselves from the “potential disruptions” of inflation for traditional currencies.
Read also: Bitcoin price falls again after Elon Musk post
The bill is likely to be passed when Bukele's party controls El Salvador's Legislative Assembly.
However, this move may not be as bold as it seems. CNBC notes that remittances from migrants account for about 20% of El Salvador’s gross domestic product (GDP) and often involve high transaction fees as well as long delays. Bitcoin and other cryptocurrencies could make these transfers more convenient and immediate. Citizens certainly like digital payments – the Strike app has become one of the most popular mobile payment apps in the country since it was launched in El Salvador in March.
See also: Is Ethereum more environmentally friendly than Bitcoin?
Still, it's a move that's still a significant gamble. Bitcoin isn't backed by a stable resource like gold or the government of a major country. Like other cryptocurrencies, it's extremely volatile – huge rises and falls are often tied to events that might be considered minor elsewhere. A resident relying on a Bitcoin transfer could be devastated if its value falls.
Launching cryptocurrency payments is no guarantee of success. Venezuela has not gone far with its digital currency Petro, although it was primarily intended as a way to pay for international sanctions. This is also tied to oil, which has had its own volatility due to the COVID-19 pandemic.
Proposal: Bitcoin mining uses less energy than the banking system
If El Salvador’s move succeeds, it could give Bitcoin and other cryptocurrencies another foothold in the mainstream financial world, making it easy to work with an entire country. It’s hard to expect other countries to embrace Bitcoin, though. The U.S. Federal Reserve, for example, is exploring its own digital currency. El Salvadorans may still have to deal with exchange rates and other difficulties, even if a digital currency eliminates some of their other challenges.
Information source: cnbc.com
