Recently, El Salvador passed a law that made Bitcoin, the most widely used of over a thousand cryptocurrencies around the world, a fiat currency. It was adopted in September. Although there was no consensus on the importance of the move, the reaction was swift.
Little has been said about key issues, such as whether cryptocurrencies would challenge the dominance of the US dollar and trading currency, or whether digital currencies other than government currencies could eventually overtake US dollars.
The Dollar and Bitcoin
The dollar has been the basis of international trade since the 40s. To trade with other countries, all countries and their central bank must have dollars. The US government enjoys unique control over international trade.
It can impose severe penalties on enemies and adversaries. The US government has the unique ability to print dollars to manage trade and other deficits, as it controls the dollar supply. Any attempt to challenge this agreement could threaten America's fundamental characteristics.
Cryptocurrencies are not like the EU euro or the Chinese renminbi (RMB). They were created by private sector entrepreneurs to facilitate payments. Due to the large asset transfers that cryptocurrency entails, it is highly secure and internet-centric. The most popular is blockchain.
Private sector cryptocurrencies pose a threat to many governments, including China. Worse still, they are controlled by American firms. In this perspective, there is no place for individuals or businesses to create money.
These and other governments view independent cryptocurrency investments as a fraud. Since most private sector cryptocurrencies are not backed by any government currency, they can be used as an investment and payment by many companies. In short, investing in cryptocurrencies is not like buy shares.
Some tech companies, like Uber, Spotify, and Facebook, have partnered with cryptocurrencies that aren't backed by either dollars or governments. - tried cryptocurrencies that were legally and explicitly backed by currencies / dollars.
There is no doubt that real money can be used to redeem cryptocurrency. These are called "stablecoins" and are available all over the world, fast and inexpensive.
El Salvador is your destination
El Salvador has a GDP per capita of around $ 4.000 and is the smallest country in Central America. However, it is also the most populous. El Salvador has been a country of refugees since 1992, when its civil war ended. Several development plans have been pursued by successive governments.
These plans ranged from textiles and tourism to making the US dollar the country's official currency. Estimated annual payments of $ 4 billion from approximately 1-2 million Salvadorans to 360.000 households in El Salvador were the most important.
Nayib Bukele, the 37-year-old mayor of San Salvador, was elected president of the "Party of New Ideas", which also won a majority in Congress.
Bukele filed and Congress approved the creation of Bitcoin as a second currency. This would reduce fees for expats who send money home, eliminate US monetary control, and encourage technology investment.
While the grades of these two currencies are not up for debate, they are hotly debated and there are distinct risks. El Salvador has made Bitcoin an officially recognized currency in the country.
This is an important step towards global acceptance of the cryptocurrency. It will also depend on whether other countries recognize Bitcoin and, more importantly, how Chinese governments promote their national digital currencies.