El Salvador has made history by becoming the first country in the world to make Bitcoin official legal tender.
But the roll out was hit by multiple bumps in the road on its first day, including angry protests, technological glitches, and a plummet in value.
Will El Salvador continue with the cryptocurrency? And will any other nations follow suit so Bitcoin becomes a mainstream currency?
What’s happened in El Salvador?
El Salvador has become the first country in the world to use Bitcoin as an official currency. This means the currency can be accepted pretty much anywhere in the country, including big chains like Starbucks and McDonald’s.
To kick things off, the government gave every Salvadoran $30 worth of Bitcoin.
The idea behind the scheme is to save hundreds of millions of dollars of transaction fees on funds sent from abroad.
Even so, the rollout was met with some opposition as around 1,000 protesters gathered outside the country’s supreme court.
The main opposition appears to be that use of the currency could promote illicit transactions and the instability of the currency could cause financial instability – a reasonable worry as its value dropped by 20% just on the back of the drama surrounding its adoption. The cryptocurrency crashed to its lowest in nearly a month, falling from $52,000 to less than $43,000.
A distribution problem also had an effect as platforms including Apple and Huawei weren’t supporting Chivo – the government-backed digital walle – and servers had to be pulled offline after they couldn’t keep up with user registrations. The issue were soon ironed out but scepticism was already rife.
What impact will this have on the currency?
The CEO of one of the world’s largest financial advisory, asset management and fintech organisations seems to think other nations will still soon follow suit.
The future for Bitcoin as a currency
The prediction comes from Nigel Green, chief executive and founder of deVere Group, a game-changing financial services giant, comes ahead of Tuesday’s adoption of the cryptocurrency as national currency alongside the U.S. dollar in the small Central American country.
Currently, outside of the U.S. and its territories, there are seven other sovereign nations that use the U.S. dollar.
Mr Green comments: “El Salvador is making history with a bold jump into the future of money – which is, inevitably, digital – by officially recognising Bitcoin as legal tender together with the U.S. dollar.
“Other countries, in particular other Central and South American nations, will be watching with great interest to see if the experiment works to shore up El Salvador’s shaky economy.
“There’s no doubt that there are major risks attached to the decision made by the young maverick president, Nayib Bukele.
“These include that there is a possibility that El Salvador could run out of dollars and that institutions, such as the IMF, might not look favourably on a nation that has adopted Bitcoin.”
The risks prompted some El Salvadorans last week to take to the streets to protest against the adoption of Bitcoin as an official currency.
He continues: “However, I’m giving El Salvador’s Bitcoin move a cautiously optimistic welcome for five key reasons
“First, El Salvador chose to be reliant upon a major ‘first-world’ currency, the U.S. dollar, to complete transactions. But this reliance on another country’s currency also comes with its own set of, often very costly, problems.
“The El Salvadoran government cannot print its own money and the economy cannot benefit from the U.S. Federal Reserve’s money-printing agenda. Therefore, El Salvador must either borrow or earn the dollars it needs.
“A stronger U.S. dollar can have a crippling impact on emerging-market economies, such as that of El Salvador.
“By adopting a cryptocurrency as legal tender these countries then immediately have a currency that isn’t influenced by market conditions within their own economy, nor directly from just one other country’s economy.
“Bitcoin operates on a global scale and is, as such, largely impacted by wider, global economic changes.
“Second, central banks around the world have been devaluing their currencies, while Bitcoin’s supply is not only limited, but also new coins are mined at a decreasing rate too. El Salvadorans could, therefore, find their new adopted currency gives them more purchasing power when they buy from overseas.”
He goes on to say: “Third, El Salvador’s adoption of Bitcoin could cut the cost of remittances, a major source of income for millions of people. The remittances would be made faster and easier too, compared to money transfer services or bank wires, so remittances are likely to further increase.
“Fourth, by diversifying the nation’s dollar reserves into the cryptocurrency, there could be additional opportunities to earn yield, meaning the size of the reserves would grow.
“And fifth, El Salvador could benefit from significant foreign investment and capital inflows as digital asset organisations are likely to relocate to the Bitcoin-friendly nation.”
Clearly, if the adoption proves to be a success it will be a massive step for Bitcoin’s mass adoption as other countries will follow El Salvador’s lead.
“Due to their similar reliance on remittances, amongst other factors, other nations, including Panama, Guatemala and Honduras, could also adopt Bitcoin should the process in El Salvador run smoothly and there’s greater economic growth, stability, and levels of financial inclusion as a result.”
The deVere CEO concludes: “We’re giving a measured welcome to the move that could make a hugely positive impact on this Central American nation and its population.
“This is truly a landmark moment in the evolution of digital currency.”
How to set up a conference call between the UK and El Salvador
If you have business interests in El Salvador, now might be a good time to get in touch.
To set up a conference call to El Salvador, go to ConferenceCall.co.uk to get your free PIN before clicking on ‘Invite Participants’ to generate an email template into which you enter the time, date and subject of the proposed conference call.
Choose UK and El Salvador dial-in codes, click ‘Copy this invitation’ and paste it into an email before sending it to up to 100 participants.
Dial-in numbers to call
At the allotted time colleagues should dial the following numbers and enter your PIN:
- UK participants dial 0843 0 250 250
- El Salvador participants dial +44 843 373 0999
Your conference call is ready to begin! For more information, check out How to conference call El Salvador.