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In an unprecedented move, El Salvador recently gained much news coverage as it became the first country in the world to adopt Bitcoin as a legal tender, sparking many discussions regarding the future of cryptocurrency. President Bukele started the day of this historic launch with a tweet, “El Salvador has the right to advance towards the first world.”
President Nayib Bukele was excessively convinced and positive about his decision. He hoped that his decision would help in eradicating his nation’s knottiest problem, that is incurring high transaction costs while sending money home from abroad, which accounts for one-fifth of the country’s GDP. This is owing to the fact that 70% of the people in El Salvador do not own a bank account.
As a gesture to promote the use of bitcoin, every Salvadaron was given 30$ worth of bitcoin which now, by law, must be accepted for paying taxes and even shopping. To access this reward, a person must download and register themselves on ‘Chivo’, a digital wallet which the government spent $200 million creating and developing a framework around the same. This seems like an extravagant amount spent on a haste decision, made to help the economy become more stabilized and lose less money in the form of transaction costs. An interesting, yet not expensive fact about ‘Chivo’ is that its literal translation in local slang is “cool”. It is an easy to use application and payments can be made by just scanning QR codes.
In 2001, El Slavador realized that their currency, the colon, was very unstable and would not survive, hence they opted for the US dollar as a legal tender in an attempt to stabilize their country’s economic plight. Even though this resulted in lowering the inflation rates in the country majorly, it came with many other concerns such as loss of monetary independence. Bitcoin adds onto these concerns as it is unstable and not regulated by any authority, let alone a major economy like the United States of America.
Many residents were in favour of this decision and believed that it would make their lives easier during an escalating global pandemic to use bitcoin as a mode of payment instead of physical money. A few shop owners also said they would benefit as it would help them fight counterfeit notes.
Unfortunately, bitcoin’s launch as legal tender did not go as well as President Bukele had expected. The day could be summarised by being one full of technological glitches, a serious fall in the value of bitcoin and angry protestors taking to the road.
Not everybody was as excited and eager anyway.There is more hate than support for the decision. Many are critical of this choice and have pointed out how this decision of the government is just a ‘folly’. Some experts are of the opinion that cryptocurrency has no credibility and cannot replace money. Their argument is backed by many strong points. It will never be able to fulfil the traditional functions of money, like store of value and means of payment because its nature is extremely volatile. Bitcoin, like any other cryptocurrency, is not backed by any financial institution. Even many residents are hesitant and refuse to be compelled to accept bitcoin as a way of living. It is inconvenient to most and they believe it will just add to their already impoverished and inflated economy.
This shift from ‘traditional money to cryptocurrency’ is not an easy one and El Salvador’s rocky start just supports the many arguments against this shift. It is highly unlikely that any other country would follow suit to use something as uncontrolled and highly volatile as bitcoin as legal tender in their economies, at least in the near future. However, this does open room for discussions on financial institutions and banks launching their own ‘digital currency’, which would combine the benefits of both the traditional money and cryptocurrency.
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