Bitcoin as Legal Tender: El Salvador’s Risky Financial Maneuver Struggles to Pay Off
El Salvador’s president Nayib Bukele, recently announced his intention to make Bitcoin legal tender in El Salvador paving a way for the country to be the first to allow a major cryptocurrency to be accepted as legal money. This move is seen as a risky maneuver by many experts and raises some important questions. Does this move offer tangible benefits for a developing nation or is it a mere public relations stunt? Will El Salvador face the same challenges that other countries that have used other non-fiat currencies have faced? There could be multiple ramifications to this move which are important to consider.
One of the main benefits of making Bitcoin legal tender could be the ability to move money more quickly compared to traditional bank transfers. This would be especially important for foreign investors who would want to invest in El Salvador, as transactions would be faster with more reliable and timely settlement. Additionally, making Bitcoin a legal tender could provide more protection for El Salvador’s citizens from currency fluctuations.
On the other hand, the move may be too risky for a developing nation such as El Salvador. Making a volatile asset such as Bitcoin legal tender could lead to massive economic losses for the country. There could be a massive run on the cryptocurrency with people exchanging their money to acquire Bitcoin, thus introducing a large degree of economic instability. Additionally, a lack of understanding of cryptocurrency and its uses may lead to misappropriation of funds which could lead to serious financial damage.
Moreover, El Salvador may need to rely on participation from major investors and exchanges to make trading Bitcoin easy and safe, which could also be challenging to achieve. While El Salvador will have a large degree of autonomy with the cryptocurrency, its ownership of the underlying technology may be limited since Bitcoin is decentralized. This would mean that El Salvador may have to rely on more powerful actors to ensure the infrastructure of trading Bitcoin remains secure and functioning.
All in all, El Salvador’s move to make Bitcoin legal tender is an interesting and risky decision. While it could potentially have some tangible benefits such as quicker international money transfers, the implications of the move for a developing country are still largely unknown. El Salvador will need to ensure that proper infrastructure and control systems are in place to guarantee a secure trading system and protect against misappropriation of funds before the move is finalized.