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Salvadoran lawmakers made history Tuesday by voting to make Bitcoin legal tender, the first country in the world to recognize a cryptocurrency on such terms.
The momentum behind the movement has built up at breakneck speed.
Just three days have passed since Salvadoran President Nayib Bukele announced his plans for crypto at the Bitcoin 2021 conference in Miami on Saturday, with legislation being voted on and approved in the country’s legislature.
In addition, the new law, passed by President New Ideas’ populist party with a qualified majority of 62 to 22, will be fully enacted within 90 days.
Such a move is indeed historic and unprecedented, but perhaps not entirely surprising given the deepening relationship that many Latin American countries are developing with cryptocurrencies and what they are used for. .
Putting aside the well-expressed concerns about decentralized and unregulated currencies like Bitcoin, at least in Latin America, it is not being grasped by the ultra-rich, but by many people facing extreme poverty.
From Rio Grande in Mexico to the tip of Patagonia, crypto has become a lifeline for millions of people.
Despite being the only country to have taken the leap so far, El Salvador has set in motion a change that is expected to take many more with it.
Is El Salvador the first domino to fall?
Following the Salvadoran assembly vote, politicians from Argentina, Paraguay, Brazil and Panama took to social media to endorse the decision.
Among these countries, it seems increasingly likely that Paraguay will soon follow El Salvador’s lead or, at the very least, introduce cryptocurrency-friendly laws.
One man in particular is leading the charge; a 36-year-old Paraguayan congressman named Carlos Rejala.
After vehemently expressing his support for Bukele on social media, Rejala hinted Monday about an “important project” which “would innovate Paraguay in front of the world”.
“As I have said for a long time, our country must move forward hand in hand with the new generation. The time is right, our time,” he tweeted.
While specific details of the project have yet to be released, speculation is rife that it will involve both Bitcoin and Paypal. Rejala is also expected to present a bill to the country’s parliament that would facilitate crypto mining and attract crypto companies looking to locate in the country.
According to Coindesk, Rejala started following the Bitcoin trend in 2017 before becoming a crypto trader himself in 2019. Following the vote in El Salvador, he shared a photo of himself with the now synonymous red “laser eyes”. supporters of Bitcoin. .
He’s not alone in his admiration for Bukele – or Bitcoin.
In Panama too, lawmakers are mobilizing to propose new laws favorable to cryptography.
On Monday, Gabriel Silva, a deputy in the country’s National Assembly, reposted one of Bukele’s tweets and announced that he was looking to draft a proposal to submit to his fellow parliamentarians.
“Panama cannot be left behind. If we want to be a true technological and entrepreneurial hub, we must support cryptocurrencies,” he posted.
But what in particular makes the countries of Central and South America fertile ground for this crypto boom?
Inflation, hyperinflation and deflation
As in many countries of the developing world, the nations of Latin America are beset intermittently by political and economic crises and the crippling hardships they cause.
In the face of rampant inflation, and in the absence of traditional banking services for large sections of the population, Bitcoin and other cryptos are now part of the way of life.
“The Latin American countries where you have this combination of cycles of inflation or hyperinflation – deflation as well – and then you have very high frictions for financial transactions, a high percentage of unbanked people, crypto currencies make perfect sense, ”Fred Thiel, CEO of US-based Bitcoin miner Marathon Digital Holdings, told Euronews.
“You just need a phone to really use it. And in those countries, most people have phones ”.
In El Salvador, about 70 percent of the population does not use or have access to banking services. It’s not just in Latin America, either, where phone ownership exceeds bank account holders.
“You see the same thing in Africa. You see the same thing in India. Indonesia, a huge country with over 250 million people and up to 70% doesn’t have a bank account but they all have one. phone, ”Thiel added.
“So these are areas where you are going to see a lot of options for digital currencies.”
Of course, each country is different and faces its own circumstances. In El Salvador, the official acceptance of Bitcoin as legal tender alongside the US dollar was a sensible approach to removing the borders of one of its main economic drivers: remittances from abroad.
Remittances – transfers of money or goods in this case by migrant workers – account for nearly 20 percent of El Salvador’s GDP with some $ 6 billion (€ 4.9 billion) sent back into the country. country each year by Salvadorans living abroad.
“I think part of El Salvador’s case is a way of dealing with inflation,” Thiel explained.
“It’s a way to support the economy by removing fees paid for money that is already sent into the country and most of these fees are collected outside of El Salvador.”
While economic growth has slowed in recent years, inflation in El Salvador remains relatively low compared to other countries in the Americas.
In Argentina, for example, inflation levels hit 54% in 2019 before dropping slightly to 42% in 2020.
Worse yet is Venezuela, where inflation peaked at 1.8 million percent in 2018. Although nowhere near as high, economists’ forecasts predict that inflation will hit 1 400% at the end of 2021.
In March, the country’s central bank printed for the first time a 1 million bolivar banknote, valued at around € 0.40.
Out of necessity, Venezuelans began to dabble in cryptocurrencies and digital currencies much earlier than many of their regional neighbors in an effort to overcome the rampant hyperinflation that is wreaking havoc on their lives.
With its economy in freefall and collapsing political system, the country launched the world’s first state-backed digital coin, the Petro, in 2018. Tied to Venezuela’s oil reserves, it had minimal success. As civil unrest continued to grow and the country’s fiat currency deteriorated further, cryptocurrency transactions skyrocketed in an attempt to prevent erosion in the value of income.
“As soon as people get their paycheck or earn money doing something, they immediately convert it to Bitcoin,” Thiel explained. “Because also the monetary system is very controlled in these countries and it is very difficult to buy dollars so you have to buy them on the black market”.
Is the world warming to Bitcoin?
As the merits of decentralized cryptocurrencies continue to be debated, the genius is already out of the bottle with Bitcoin.
El Salvador’s decision to make it legal tender is another step towards making cryptocurrencies a main feature of the global financial ecosystem, but it is not yet clear whether countries outside the developing world are ready. to warm up to Bitcoin and its ilk in the same way.
There is no doubt that at the very least, a thaw is now well underway, according to Thiel.
“I think we’re going to see a lot of policymakers in non-G7 and G8 countries taking pretty positive positions towards the use of Bitcoin, with the exception of some regimes that see it as a threat, like China,” he said. he told Euronews.
Home to 75% of the world’s Bitcoin mines, China has stepped up its crackdown on mining operations and cryptocurrency trading in recent months.
Just last week, authorities disabled traders’ accounts on China’s social media platform Weibo and announced a ban on mining.
“These are usually the countries where they really want more control of the economy where they try to limit that,” Thiel said.
“You are going to see a lot of G7 / G8 statements here regarding central bank digital currencies.”
Many leading industrialized countries are starting to consider launching their own digital currencies, including China, the United States and the United Kingdom. E-money projects are already well advanced in Sweden, for example, which is one of the countries where digital payments are growing the fastest.
Cryptocurrencies are not without risks, especially given the extreme volatility of the price of Bitcoin. Despite the encouraging news from El Salvador, the value of Bitcoin continued to decline.
But for some countries, including those in Latin America, the risks surrounding Bitcoin will continue to be a more attractive prospect in times of economic turmoil than digital currencies which are tied to equally volatile fiat currencies or global reliance on it. American dollar.
“I think we’re going to see a wide adoption of digital currencies across the board, it’s just that in some cases Bitcoin is the ideal currency because it’s just ubiquitous and easy to use,” Thiel said. “And that allows a country to align itself with a currency like Bitcoin that is not tied to a particular nation.”
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