As previously reported, El Salvador has become the first country in history to declare bitcoin legal tender. Several financial institutions – such as the World Bank – are not too happy about the situation, but while others like Bank of America admit that there is quite a bit of risk in making bitcoin legitimate money, there are also some potential benefits that may be getting ignored.
Bank of America: El Salvador May Be on a Solid Track
In a recent report, Bank of America looked at both the positives and the negatives that came with potentially making bitcoin legitimate money in a region like El Salvador. Among the many benefits is the ease that comes with sending money back home. It has been stated by Nayib Bukele – the president of the nation – that approximately one quarter of El Salvador residents work abroad in regions such as the United States. They are thus made to send money home to their families.
When sending it home in USD – the fiat currency that El Salvador has largely been dependent on for the past several years – much of the money is lost to transaction fees. However, with bitcoin, these fees can be lessened, and families are able to keep most of the money that their relatives are earning in the U.S. The bank’s report claims:
The market has been excessively pessimistic about it and is overlooking any argument in favor, even if those benefits are admittedly more uncertain.
In addition, large portions of adult communities in El Salvador remain unbanked. It is estimated that around 70 percent of the nation’s adults do not have bank accounts of any kind, and thus are not privy to the services that these accounts and their respective institutions provide to make everyday life survivable.
By making bitcoin accessible to residents, however, they will undoubtedly be able to utilize electronic payments by way of mobile applications, a huge staple of modern-day banking services. The report goes on to say:
For that reason, democratizing access to electronic payments through bitcoin has a progressive touch.
Still Some Risk Involved
Another big advantage? With the United States and most of America serving as a major crypto hub, El Salvador’s openness to bitcoin and other cryptocurrencies could ultimately see many American companies moving in to establish new offices and build their client rosters. Bank of America explained in its report:
There could be [foreign direct investment] from Strike (developer of the payments platform), bitcoin miners, and ATM manufacturers, among other types of firms.
Despite the overall positivity of the report, Bank of America has made it clear that it is not crazy about El Salvador’s decision, claiming that allowing payments to be made via BTC is risky given the volatility of the asset. The firm also stated that permitting such payments could potentially lead to heavy drops in revenue for accepting companies.