Cryptocurrency: El Salvador’s own bitcoin experiment has much to teach us

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(FILES) In this file photo taken on July 19, 2021 this illustration photograph shows a physical banknote and coin imitations of the Bitcoin crypto currency, in Istanbul. - Bitcoin slid below $40,000 on January 10, 2022, falling to its lowest level since the end of September as the world's leading cryptocurrency showed no end to its volatility. Bitcoin dropped to $39,663.18, having soared to a record high of over $66,000 in October. (Photo by Ozan KOSE / AFP) (Photo by OZAN KOSE/AFP via Getty Images)

Last autumn El Salvador became the first, and as yet only, nation to adopt bitcoin as a legal currency.

When El Salvador’s congress rubber stamped President Nayib Bukele’s proposal to embrace the cryptocurrency alongside the US dollar it was heralded as a decision which would bring financial inclusion and investment.

President Bukele said the adoption of bitcoin would also make it easier for those living abroad to send money home and the $4bn (£2.8bn) they send back each year accounts for 20 per cent of the country’s gross domestic product (GDP).

But the law was reliant on businesses having the technology to process the transactions and there was an added complication, El Salvador had asked the International Monetary Fund for a $1bn loan; a request that was later rejected.

Katharine Wooller, managing director, of crypto wealth platform Dacxi, said that the launch had been accompanied by problems, the platform on which the bitcoin was held ended up crashing and a $30 incentive to set up a bitcoin account had not gone down well.

She said: “As with the adoption of the euro in Europe, it has not been met with unmitigated enthusiasm – indeed some (mostly the older generation) in El Salvador felt compelled to protest in the streets against the policy.”

Over the following weeks the decision appeared vindicated as bitcoin rose from its value at transition, $42,600, to an all-time high of $65,500 a few weeks later. She pointed out the gain was short lived, and bitcoin’s price has since corrected sharply to $43,700.

Despite teething problems Ms Wooller does believe crypto has a future as a legal but decentralised financial asset, rather than a currency.

“Its volatility does need to be addressed but at the moment many of those who are holding bitcoin are doing so as a hedge against potential inflation, and thus are using it as a store of value akin to gold rather than as a currency.”

Ms Wooller believed regulation of cryptocurrency would emerge, because many of the world’s central banks are in the process of producing their own version of a decentralised currency.

“Whilst clearly robust regulatory supervision is needed to facilitate crypto interacting with traditional financial infrastructure, the appeal is precisely because being decentralised it is immune to interference by government.”

She dismissed fears that a decentralised currency could destabilise economies. She said: “Those who are aghast at the major economies printing money with wanton abandon are therefore highly motivated to purchase reputable crypto, which at a government and financial institution level provides a huge potential market.

“The technology itself is already turning heads in economic policy, as the majority of the world’s central banks are considering digitising their currency, and pilot projects are already underway, such as in China, gaining good traction.”

Source: https://inews.co.uk

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