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El Salvador to make Bitcoin a legal tender

El Salvador has decided to make bitcoin a legal tender to improve the economy of the country.

Legal Tender
Photo By "Deutsche Welle"

A rare event has marked a turning point in the crypto world during June of 2021. Before The announcement, the government was combative about the crypto concerns. Their regard for this digital asset is ranging from accepting them as an asset but not a full-fledged currency to the complete ban on the use. But the news of El Salvador, making it a legal tender, is a real deal.

This acceptance is making things clear that Salvadorinas can use bitcoin as a medium for exchange similar to the US Dollar. One can buy products with it.

El Salvador has made this a legal tender due to various reasons. The economy is depending on diaspora remittances. Such recipes call for 25% of the country’s GDP. They are the crucial part for the levels for its vibrancy in the economy.

With such a position, costs related to sending remittances are very important. The government has affirmed this situation with a tweet from the president. It has made bitcoin a legal tender. There are also cost benefits that will help users to avoid high transfer fees.

El Salvador is facing some issues like many developing countries in terms of low bank account penetration rates. The cause is its inadequate infrastructure which is having concerns for financial service providers.

To counter this issue, the government believes the adoption of crypto is a better fit. Another key consideration is to address the yearly low GDP growth rate of the country. The country is unable to breach the 4% GDP growth rate barrier. These issues are leading to monetary troubles.

There are also some potential drawbacks to this move. There is the risk of exposure to volatility. The volatile nature of cryptos is getting more stable value for trading. It is not a particular issue that investors face. It created an issue where the utilization of a unit for trade is the main concern. Estimation of commodity prices will also become a key concern. Such price swings will increase the overriding possibilities.

There will be reduced control of the government on monetary policies. Also, adopting crypto as a legal tender is beneficial to some parties. The government will opt to increase financial inclusion while reducing its exposure to policies of a foreign government.

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