Bank of America sees benefits of adopting Bitcoin as legal tender in El Salvador

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Bank of America highlighted some benefits to be gained from adopting bitcoin as legal tender in El Salvador. Opportunities include low-cost remittances, financial digitization, more choice and greater investment from foreign companies.

Bank of America Highlights Opportunities Bitcoin Brings to El Salvador as Legal Offer

Bank of America (BOA) described some potential benefits to El Salvador by adopting bitcoin as legal tender in a report released last week.

Analysts, including Latin American strategist Claudio Irigoyen, explained that “the market has been excessively pessimistic about this and neglects any argument in its favor, although these advantages are admittedly more uncertain”.

First, the report details:

Bitcoin could be used as an intermediary for cross-border transfers… The use of bitcoin for remittances could potentially reduce transaction costs compared to traditional transfer channels.

Bank of America analysts further noted that bitcoin’s volatility could be reduced if conversions between BTC and dollars “happen automatically.”

Financial intermediaries would receive less transfer fees, leaving beneficiaries with more disposable income. However, Bank of America cautioned, “it is not clear how bitcoin transaction fees would compare to traditional transfer channels.”

Second, the Bank of America report describes that “financial digitization” could be another benefit since “over 70% of the adult population in El Salvador does not have a bank account”. Analysts pointed out that “the democratization of access to electronic payments via bitcoin has a progressive touch.”

Additionally, the adoption of bitcoin as legal tender “gives consumers more choice,” Bank of America analysts noted, adding:

We do not agree with the idea that it is coercive that companies are legally required to accept bitcoin as a form of payment as long as they have the appropriate technological infrastructure.

They further explained that payments can be automatically converted to dollars using the government’s electronic wallet, Chivo.

Finally, the report indicates that bitcoin adoption could attract foreign direct investment (FDI) flows to El Salvador, such as Strike, bitcoin miners, and ATM manufacturers. At least two crypto ATM companies have already announced their intention to install cryptocurrency ATMs in El Salvador: Chainbytes and Athena Bitcoin.

Despite some advantages, Bank of America believes that the adoption of bitcoin as legal tender in El Salvador is negative overall, in large part due to the high volatility of the cryptocurrency. Analysts explained that letting people pay taxes on a highly volatile asset is of particular concern, warning that it could lead to a sharp drop in income if the price drops.

What do you think of Bank of America’s perspective on bitcoin as legal tender in El Salvador? Let us know in the comments section below.

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