3 Reasons Why El Salvador Has Adopted Bitcoin as a Form of Payment
3 Reasons Why El Salvador Has Adopted Bitcoin as a Form of Payment
El Salvador made history on Tuesday, September 7, 2021, when it became the first country in the world to recognize Bitcoin as legal tender. Bitcoin, along with the United States dollar, has now been designated as El Salvador's official currency.
The initial rollout was plagued by problems, with protestors taking to the streets to express their displeasure with the move, the government's payment app going offline for a brief period of time, and the price of Bitcoin plummeting precipitously.
Although it is too soon to predict the full extent of the impact that Bitcoin adoption will have on the small country, there are some important lessons to be learned from this week's events. We'll look at why the adoption of Bitcoin in El Salvador is significant in this section.
1. It has the potential to lead to the adoption of Bitcoin by more countries
Following El Salvador's announcement that Bitcoin would be adopted as the country's official currency, politicians from across Latin America called on their respective governments to follow suit. Bitcoin as a national currency has several advantages, the most important of which are the reduction of reliance on the US dollar, reduction of inflation, and attraction of foreign entrepreneurs. There's also a fear of being left out or of being left in the dust.
There have been no concrete steps taken by any other countries toward the adoption of Bitcoin or other cryptocurrencies as legal tender. However, if El Salvador's experiment is deemed a success, it is almost certain that other countries will follow in its footsteps.
2. Financial Inclusion is being expanded
According to World Bank data, only 30 percent of El Salvador's population has a bank account at any given time. But a much larger proportion of the population has access to smartphones, establishing El Salvador as a mobile-first country. Many citizens are unable to participate in the legitimate economy of their country if they do not have access to a bank.
The acceptance of Bitcoin as legal tender has sparked hope that this might be changing. Citizen will be able to access cryptocurrency safely through their smartphones by downloading the government's Chivo wallet, which will allow them to gain access to micro-lending services while avoiding predatory lending practices and high interest rates, according to the government.
The adoption of Bitcoin as a national currency will provide Salvadorians with an opportunity to participate in the global economy while also allowing them to have greater control over their finances. El Salvador has already installed 200 cryptocurrency ATMs throughout the country, allowing residents to quickly and easily convert Bitcoin into US currency.
3. Cross-border remittances that are both faster and less expensive
President Nayib Bukele of El Salvador has argued that the use of Bitcoin will make it cheaper and faster for citizens to receive remittances from abroad. He claims that as a result of the country's adoption of Bitcoin, Western Union, MoneyGram, and other money service providers stand to lose as much as $400 million in commissions on remittances.
The current rate charged by middlemen such as Western Union for a $100 transfer is 12.75 percent or higher. Instead, transfers made in Bitcoin through the government's Chivo digital wallet incur no transaction fees and thus avoid the need for expensive commissions. Additionally, anyone who chooses to receive payments in Bitcoin can have the funds automatically converted to dollars, alleviating concerns about the currency's volatility.
In El Salvador, remittances account for 23 percent of the country's gross domestic product, with the country receiving nearly $6 billion in remittances in 2020, which will benefit approximately 360,000 households, or approximately 70 percent of the country's population. It should come as no surprise that remittances have been a major selling point for the country's Bitcoin initiative, given their importance to the economy.
In Conclusion
El Salvador has made history by becoming the world's first country to use Bitcoin as its national currency. This is the first time this has happened. The government hopes that the introduction of Bitcoin will result in much-needed economic growth as well as a reduction in the country's exposure to the policies of foreign governments. The cryptocurrency community anticipates that El Salvador's move will increase its credibility. Inevitably, every person and organization will be watching El Salvador for clues about whether Bitcoin will be recognized as an official currency there.
