The decision made by El Salvador to adopt Bitcoin as its official currency has caught the world’s attention. With the country’s political and economic ties to the United States, it will be interesting to see how other nations react to this move. While the decision has created a lot of buzz, it’s still too early to tell whether it will be successful in the long run. This article aims to evaluate the impact of El Salvador’s Bitcoin experiment so far.
Benefiting the Unbanked Population
El Salvador has a significant population of unbanked individuals, with around 70% lacking access to bank accounts, according to PwC. However, over 9.94 million people, or 156.5%, own cell phones, making a smartphone-only monetary system an attractive option. The use of Bitcoin may also reduce international wire transfer fees, which could benefit many Salvadorans. Remittances account for almost 20% of the country’s GDP, according to the World Economic Forum.
By adopting Bitcoin, El Salvador hoped to reduce poverty and provide financial services to unbanked residents. It aimed to give its citizens access to digital cash through their smartphones, which could potentially stabilize the economy and reduce inflation risk.
Monitoring Corruption and Money Laundering
One potential advantage of Bitcoin is its easy government monitoring, which may help reduce money laundering and corruption. Additionally, it may attract international investment, which could boost economic growth. However, the country has faced political turbulence since adopting Bitcoin. The government has been unstable, with political party strife and economic uncertainty.
Mixed Results so Far
Although El Salvador’s Bitcoin experiment has created new digital services and prospects, it has not yet had the desired impact. The country’s poverty rate has increased to 26.6%, higher than before Bitcoin became legal tender. Cryptocurrencies account for less than 2% of overseas remittances, and the boost in tourism GDP looks negligible.
Global Effects of Bitcoin Volatility
The volatility of Bitcoin has had global effects, which were particularly painful during currency declines. Bitcoin has not yet recovered from September 2021 when El Salvador started buying. It has fallen from $45,000 to $28,000.
El Salvador’s Bitcoin Pioneers
El Salvador’s Bitcoin pioneers Max Keiser and Stacy Herbert have created a successful financial news show on Russian state television, profiting from the crypto explosion. They have founded a crypto exchange that manages Bitcoin-linked sovereign debt sales in El Salvador and advise the Salvadoran government on Bitcoin and crypto investments. They visited El Salvador in 2021 and expressed interest in cryptocurrency ventures there. However, they have conflicts of interest since they will profit if El Salvador adopts Bitcoin.
The Future of Cryptocurrency Adoption
El Salvador’s Bitcoin experiment has set the pace for other nations to contemplate legalizing digital currencies. However, it’s unclear if El Salvador will benefit from this move, given the animosity towards crypto from US states and the SEC’s punishments of firms and people for improper behavior. The lack of global legislation for crypto creates ethical conflicts, and governments are addressing them. Continued education may boost adoption as young people learn and utilize the technology.
El Salvador’s adoption of Bitcoin as its official currency has sparked interest worldwide, but its impact is still uncertain. While it may benefit the unbanked population and reduce corruption and money laundering, it has not yet had the desired impact on the country’s poverty rate or tourism GDP. The global effects of Bitcoin volatility and the animosity towards crypto may hinder its success. As we continue to watch El Salvador’s future, other nations will be influenced by the outcome of its Bitcoin experiment, and we may see more countries legalizing digital currencies.
