In what appeared to be a bold financial move, El Salvador announced Bitcoin as its official currency. That’s a rare step among countries. The South American nation becomes the first government to make Bitcoin a law. Why the move?
The event took place in 2021 June, marking a turning point as far as the crypto world is concerned. Before the declaration, governments across the globe remained combative on cryptocurrencies. Their crypto regards ranged from banning the coins to allowing them for investment purposes, but not an official currency.
Salvadorians have the chance to use BTC for exchange purposes as the law goes into effect. The crypto will act as the dollar and the previously Salvadorian colon.
Why El Salvador Adopted BTC
- Reduce Remittances Costs
First and foremost, the country’s economy relies on overseas remittances, accounting for about 25% of the nation’s GDP. That said, the charges related to sending remittances remain vital. The country’s president confirmed this through a tweet. Legalizing BTC will make the process less costly.
- Magnify Financial Inclusion
Similar to most developing economies, El Salvador faces the issue of low bank penetration rates. That is due to insufficient financial infrastructure like bank branches. The president believes that adopting digital coins will alleviate such problems. Keep in mind that BTC does not require physical offices to access. Constructing physical braches is costly. Moreover, BTC does not need infrastructure such as roads. Such financial conveniences attracted Nayib Bukele, El Salvador President.
- Boost the Country’s Economic Growth
The low yearly economic growth made El Salvador consider BTC as an official currency. Data from World Bank shows that the nation has struggled within the 4% GDP rates over the past ten years. Such issues come from monetary problems that forced El Salvador to adopt the United States dollar. For now, the government has decided to turn to BTC.
Though the multiple benefits, Bitcoin as a legal tender had its drawbacks. For instance, the government will have reduced monetary policies control by adopting BTC. Also, the volatile crypto nature threatens the nation’s economy.
For now, most LATAM nations remain alert on how El Salvador will go with Bitcoin adoption.
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