September 7, 2021
El Salvador will become the first nation in the world to introduce bitcoin as legal tender on Tuesday, a step President Nayib Bukele says could help Salvadorans abroad to save millions in commissions on remittances.
Despite this, citizens are skeptical of the step and are concerned about the cryptocurrency’s volatility. There are also questions of how it will work once implemented.
Here are some pros and cons of the plan that have emerged:
OVERSEAS REMITTANCES:
In 2020, Salvadorans abroad sent about $6 billion to their families back home, mostly from the United States.
Bukele says introducing Bitcoin as legal tender could allow Salvadorans to save $400 million, which normally goes to commissions for remittances from abroad.
In addition to the reluctance and suspicion of Salvadorians on this, World Bank data show also that El Salvador’s U.S. remittance costs are already among the globe’s lowest.
<span style=”font-weight: 400;”>CARBON FOOTPRINT</span>
Bitcoin’s rise has raised questions about the environmental impact of cryptocurrencies.
Bukele has tried to allay sustainability concerns by asking the government-owned geothermal power company LaGeo to offer bitcoin mining facilities that use renewable energy from volcanic activities.
<span style=”font-weight: 400;”>REGULATORY COMPLIANCE</span>
Bitcoin’s introduction has triggered fears of an increase in regulatory, financial and operational risks for financial institutions.
Indeed, when Bukele approved the Bitcoin law, credit rating agency Moody’s downgraded El Salvador’s credit rating.
<span style=”font-weight: 400;”>FOREIGN EXCHANGE</span>
Bukele has set up a $150 million fund to convert Bitcoin into dollars, however, there are lingering doubts about how the nation will deal with the risks associated with large fluctuations in the digital currency.
For more information, view the original story from Reuters.
