As early as 2021, El Salvador was the first country to do so Accept Bitcoin as official legal tender. It was a turning point with many people either praising or condemning the move. Recently, governments have cracked down on bitcoin. And the current political climate in the United States and elsewhere could have a major impact on how we talk about El Salvador and the cryptocurrencies it launched.
Because El Salvador is so closely intertwined with the US politically and economically, any shift in these areas can have huge repercussions. It will be interesting to see how El Salvador’s decision will pay off and whether other countries will follow suit.
El Salvador’s bold move
El Salvador made a splash when it adopted bitcoin as its official currency. The unprecedented decision will benefit many citizens.
According to PwC, around 70% of El Salvador’s population does not have access to a bank account. On the other hand, there are 9.94 million cell phone subscriptions in the country, or 156.5% of the population. Therefore, moving to a monetary system that only requires a smartphone app to work could be very beneficial.
Additionally, according to the World Economic Forum, remittances account for over 20% of the country’s GDP. Given how much money is spent on international wire transfer fees, Bitcoin could be an attractive alternative.
El Salvador introduced bitcoin as its national currency, mainly to fight poverty and help unbanked citizens. The government hoped to improve citizens’ economic opportunities and give them access to digital currency through their smartphones. This would connect them to previously unavailable financial services. Additionally, it would help promote a more stable economy by reducing the risk of inflation.
In addition, adopting bitcoin as a national currency could also curb money laundering and corruption as the government could more easily monitor transactions. The use of bitcoin could also attract foreign investment and further boost economic growth.
The current political environment
Unfortunately, El Salvador has experienced political turmoil since the introduction of Bitcoin. Currently there is instability in government, conflicting interests between political parties and an uncertain economic future. But despite the instability and the rise in gang violence in 2022, tourism has increased by 30%.
Although new opportunities and better access to digital services are available, it is unclear whether they have caught on. The poverty rate in El Salvador is still 26.6%, even higher than before Bitcoin became legal tender. Central bank data shows that cryptocurrencies also account for less than 2% of foreign remittances. And any increase in GDP from tourism seems insignificant at the moment.
Bitcoin’s volatility also had far-reaching consequences. And these have been the most disruptive to the currency’s down moves. Bitcoin’s value has yet to return to September 2021 levels when El Salvador started buying into it. The average price has been around $45,000 per bitcoin, and the price has recently increased to around $28,000.
Potential Conflicts of Interest
Recent reports in The Wall Street Journal noted that two key figures in the rise of Bitcoin in El Salvador, Max Keizer and Stacy Herbert, have started a popular financial news show on Russian state television. They claim to have benefited from the crypto boom. Apparently, they are the founding backers of a crypto exchange that helps manage the sale of El Salvador’s national debt linked to bitcoin. Additionally, they have become advisors to the Salvadorian government on Bitcoin adoption and investing in crypto ventures.
The couple first visited El Salvador in 2021 and appear to be heavily involved in cryptocurrency-related projects in the country. Your involvement involves a degree of conflict of interest. They have positioned themselves to benefit from their investments if El Salvador’s use of Bitcoin is successful.
This type of ethical clash is not new to crypto. In fact, the lack of regulation around the world is one of the reasons governments are now cracking down on it. The more people use (and abuse) crypto and other investments, the more governments need to act. The question now is whether these laws will help or hurt the industry.
Regulation, bans and the future of crypto
Several states in the US have proposed bans on crypto mining. The SEC has taken action against many companies and individuals for actions they believe to be illegal. Additionally, some federal politicians have said they want to ban crypto altogether. If this hostility prevails, it could lead to innovation elsewhere. But whether El Salvador would be on the receiving end is hard to say.
Still, two years isn’t much time to expect full adoption of a fledgling currency. Most cryptocurrency texts are not yet available in Spanish. And knowledge of the asset and how it works often doesn’t reach those on low incomes, regardless of geography.
In 2022, 10,000 students learned about cryptocurrency and its multiple uses. This type of education, if continued, could drive adoption as young people begin to understand and use the technology.
Looking ahead as other countries weigh crypto
El Salvador is a leader in cryptocurrency adoption, and its success (or failure) could have an outsized impact on countries considering adopting a digital currency as legal tender. As we look to the future of El Salvador, it becomes clear that the political environment has played a role in how people talk about their national currency. Depending on how things develop from here, other countries may be encouraged (or discouraged) to implement their own cryptocurrency projects.
But as Bitcoin’s value increases and adoption is underway, it might be too early to draw any conclusions.
Disclaimer
Following the Trust Project guidelines, this special article presents opinions and perspectives from industry experts or individuals. BeInCrypto is dedicated to transparent reporting, but the views expressed in this article do not necessarily reflect those of BeInCrypto or its employees. Readers should independently verify information and consult a professional before making any decisions based on such content.
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