Why Are More Countries Adopting Bitcoin As Legal Tender?
Bitcoin is gaining popularity in countries with limited access to conventional payment systems
El Salvador made history on June 8 when the Government passed a law to make Bitcoin part of its mainstream financial system. The bold move of adopting Bitcoin as a legal tender, becoming the first country in the world, was applauded by the crypto community worldwide. The legislation will take effect in September.
The announcement was followed by El Salvador President Nayib Bukele offering $30 worth of Bitcoin to any citizen who signs up for the digital wallet named Chivo, created by the Government.
Following El Salvador, politicians in Argentina, Brazil, Paraguay, and Panama took to social media to endorse the decision. Paraguay might become the second country to make Bitcoin a legal tender. Lawmaker Carlos Rejala announced that he would be introducing the bill in the country’s National Congress in July 2021.
For the bill to be passed as a law, it has to receive a majority vote in the South American country’s lower chamber of congress, upper chamber of congress before being approved by the Paraguayan president.
Similarly, a Mexican law maker in the federal government extended his support by tweeting, “promoting and proposing a legal framework for crypto coins in Mexico’s lower house.”
What’s driving the Bitcoin adoption?
Why has the world’s leading cryptocurrency, Bitcoin been attracting the attention of El Salvador and its neighbouring regional economies?
To comprehend this, it is important to understand the political history of the region. Majority of countries in Latin America went through multiple severe financial and political crisis and the Government had failed to help the people during these instances.
These countries have been subject to hyperinflation and fluctuations in policies in the past. Countries like El Salvador have been bearing the brunt of irresponsible use of monetary policies, often leading to hyperinflation.
To put this into perspective, this isn’t the first monetary experiment in El Salvador. In 2001, the US dollar was made the legal tender but it falls short of addressing the needs of a fraction of the local population, who rely on international remittances. Limit on foreign currencies, especially the US dollar, caused the rise of cash economy in the country. Crypto and Bitcoin are deemed as the most ideal way for citizens to safeguard their savings from inflation and unforeseen government decisions or a political crisis.
These economies have low banking penetration and many households are dependent on the foreign remittances sent by family members working abroad. Considering the shortcomings of the US dollar, it seems logical to introduce Bitcoin as a legal tender in the local markets. For instance, sending money through crypto costs them a lower commission over traditional ways to remit.
Adoption of Bitcoin is the perfect solution for the unbanked, who can receive the international remittances on a simple smartphone. Crypto also allows the unbanked access to other financial offerings like savings and lending.
Using cryptocurrencies allows local businesses to conduct local and international transactions at a considerably lower cost, and at a faster rate. The digital currencies also help businesses overcome issues that arise due to uncertain regulations for cross-border payments as they can process settlements with their partners with bitcoin payments.
In El Salvador, the government is bringing Bitcoin to the public sector after it was already part of the cash economy. Similar countries, who couldn’t save their national currencies from falling prey to hyperinflations can welcome a currency that isn’t entirely dependent on the local geo politics.
What will change with Bitcoin becoming a legal tender?
The crypto transactions that businesses indulged in will become completely legal with Bitcoin being adopted as a legal tender. It will facilitate easier cross-border businesses without the involvement of hefty commissions or delays.
The adoption will eliminate the need for a special POS for usage of Bitcoin for everyday transactions and can be used by any individual irrespective of their residential or financial status.
Cryptocurrencies’ volatility is solely linked to the ups and downs of its adoption, it is open to speculation but the mechanism isn’t under anyone’s control. It is a currency with no set rules, and the value remains unaffected by the actions of the government.
El Salvador’s decision is definitely a boost for the cryptocurrency and it could lead to a mass adoption with the neighbouring economies expressing interest — owing to the convenience it offers and financial inclusion of the entire community.