By Sesie Bonsi
El Salvador has now become the first country to have adopted Bitcoin as a parallel legal tender alongside the U.S. dollar. This should hardly come as a shock since COVID-19 triggered the proliferation of fiat digital currencies.
Although Nayib Bukele, El Salvador’s President, is leading the way, politicians from other Latin American countries have also begun calling for the adoption of Bitcoin, due to their reliance on the U.S. dollar. Meanwhile, the World Bank rejected a request from El Salvador to help with the implementation of bitcoin, citing concerns over transparency and the environmental impact of bitcoin mining.
So, which countries are likely to implement Bitcoin next?
Chainalysis, which researches blockchain transactions, ranked Venezuela third on its Global Crypto Adoption Index. Venezuela is already using crypto as a palliative for its economic situation, but Paraguay, Panama, Mexico, and Brazil could be next. El Salvador will not be an isolated case.
Latin American countries and their politicians are considering other currencies alongside the U.S. dollar as a reserve currency to provide liquidity and risk negation. When COVID-19 hit, the dollars kept in countries’ reserves lost value, and, with that, the search for an alternative currency to hedge against inflation began.
Who wouldn’t want a stable economy, autonomy, and liquidity that isn’t tied to the decisions of another country?
Due to international commercial law, Bitcoin is also authorized as legal tender under all the treaties where El Salvador is a member. The other countries that are part of these treaties, and consequently the banks and financial institutions, will have to accept this currency.
Suppose you own a business in Mexico and do business with a vendor in El Salvador requiring your company to pay in bitcoin; your financial institution must figure out how to send the desired currency.
It’s a domino effect: This movement will trickle down to all the multinationals with offices in El Salvador.
Elon Musk’s decision to stop Tesla from accepting bitcoin as payment, unless miners used 50 percent clean energy, led to fresh scrutiny of cryptocurrency’s environmental impact. But El Salvador plans to implement a state-run geothermal energy utility that would use power derived from volcanoes, a renewable and sustainable energy resource, for bitcoin mining. This marks the start of more renewable crypto-energy projects.
And even though the World Bank has publicly expressed doubts about the rise of crypto, it is creating an alternative crypto infrastructure to stay relevant. Even the Bank of England was urged to create and regulate its own cryptocurrencies during a government-backed review early this year.
The alternative solution these financial institutions are considering is a central bank digital currency, or CBCD — a digital form of a country’s currency. When that currency is established, we would see government benefits for unemployment and welfare paid by CBDC. Then, the taxing authorities could require most corporations to pay payroll tax with CBCD, which would necessitate paying employees in CBDC. Business analytics company MicroStrategy already pays its board of directors in bitcoin.
Forcing the general public to buy from banks would mean restrictions on where you could purchase alternative currencies, and financial institutions would be able to block third-party crypto sites or wallets.
Public education about emerging cryptocurrencies is key. Decentralized cryptocurrencies mean governments can’t seize the assets of a political opponent if they disagree with the political agenda, which is why people living under authoritarian governments, using financial systems to assert control, are pushing for its adoption.
But if CBDCs become mainstream, could this mean less autonomy yet again?
Illustration: Li-Anne Dias.
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