“On September 7th, 2021 the Bitcoin was officially adopted as El Salvador’s currency. El Salvador can be considered as a Daredevil as all the other nations are reluctant in adopting cryptocurrencies as a payment system and El Salvador has become the first currency to legalize its use.”
El Salvador: The Weakening Economy
El Salvador is one of the poorest countries in Latin America with a GDP of $25.60 Billion. The economy is solely dependent upon agricultural products and the industrial foundation is relatively weak. 2019 data reveals that many El Salvadorians living outside the country transfers huge amounts of money back home and it is one third of the total GDP of the country.
Transferring money back home results in conversion fees that slashes a huge chunk of the money out of the transaction resulting in losses. The initial currency of El Salvador was Salvadoran Colon which was replaced by US Dollar in 200. The data reveals that 70% of the countrymen do not have the access to the financial systems and they are heavily relied on cash transactions. Setting up of banks is an expensive process and the country cannot afford to build a financial system that can support its population.
El Salvador: The Daredevil
The weak economic infrastructure of El Salvador led the President Nayib Bukele to announce on June 5th that Bitcoin will be made a legal tender in El Salvador along with US dollar. On September 7th, Bitcoin was officially adopted as El Salvador’s currency. El Salvador can be considered as a Daredevil as all the other nations are reluctant in adopting cryptocurrencies as a payment system and El Salvador has become the first currency to legalize its use. Though the decision has sparked various debates internationally, the President is confident regarding the decision and has already bought 1,120 BTC and is eyeing at buying during the dip in the Bitcoin market. The President has already claimed that since its investment in Bitcoin, it’s value has almost doubled.
Bitcoin as a Legal Tender: Future Prospects
El Salvador is facing huge resistance from the global community as well as the internal countrymen for making Bitcoin as a legal tender as most of them are not ready to use it as a currency. The future of Bitcoin as El Salvador’s legal tender is somewhat cloudy right now and more will be revealed as the time unravels it.
The El Salvador government has created a Chivo Bitcoin Wallet for its countrymen that can be used to pay for goods and services in the country. The wallet also enables real time conversion of Bitcoin to US Dollars if someone wants to pay or accept in US Dollars. The use of Bitcoin is not mandatory but an option. Though, El Salvador gives $30 in Bitcoin to people who create and use Chivo Wallet for payments to boost its widespread adoption.
Making Bitcoin a legal tender will help the El Salvadorians overseas to transfer money back home with a very little fee and without visiting a bank. The payments will be almost instant and the money and time lost in traditional fiat transfers will be reduced considerably. The mass adoption of Bitcoin around the world will make Bitcoin less volatile over the years and thus shows a bright prospect for El Salvador’s Economy.
Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.
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