Central American countries are eagerly waiting to see if El Salvador’s adoption of Bitcoin as a parallel legal currency will cut the cost of remittances, an important source of income for millions of people, the region’s development bank said.
President Nayib Bukele’s allies in Congress have already passed legislation that makes the official cryptocurrency alongside the US dollar the first in the world. The change takes effect in September.
Bukele praised the adoption of Bitcoin as a way to facilitate the payment of remittances from Salvadorans living abroad. Bitcoin price in India was at Rs. 37.86 lakhs from 1pm IST on August 25th.
“Everyone is looking to see if El Salvador is doing well and if, for example, the cost of remittances drops substantially … other countries will probably seek this advantage and adopt it”, Dante Mossi, executive president of Banco Central Americano for Economic Integration (CABEI), he told Reuters.
Mossi called the plan an “out-of-this-world experiment” aimed at increasing financial inclusion in a region where many people lack access to bank accounts or credit cards and depend on money sent home by relatives living in the United States.
CABEI, the regional development bank, is providing technical assistance to El Salvador in implementing the cryptocurrency, an important demonstration of support as the World Bank refused to help, citing environmental and transparency disadvantages.
Mossi said Central American nations that receive the most remittances are the most likely to favor the use of Bitcoin and stressed that CABEI has a “fiduciary obligation” to support El Salvador in its request for help.
“Guatemala, Honduras and El Salvador are the countries that stand to gain the most if adopting Bitcoin reduces the cost of sending remittances,” said Mossi.
CABEI participated in a recent meeting of the Central American Monetary Council, part of the Central American Integration System (SICA), where participants asked about El Salvador’s Bitcoin plans and expressed interest, he added.
The Honduran Central Bank referred to Reuters in a June 11 statement that the bank does not prohibit, supervise or guarantee the use of cryptocurrencies as a means of payment in the country.
The governments of Guatemala and Honduras did not immediately respond to a request for comment.
Less than 1 percent of the volume of international international shipments is currently in encryption, according to Autonomous Research, but in the future encryption is expected to account for a larger share of over $500 billion (about Rs. 37,13,950 crores ) on for annual global shipments.
Bitcoin offers, in theory, a quick and inexpensive way to send money across borders without relying on traditional channels.
CABEI’s head of investments, Carlos Sanchez, said the bank’s technical assistance is focused on helping El Salvador create a legal framework for Bitcoin adoption and ensuring that strict international money laundering protocols are adhered to.
The assistance is aimed at helping El Salvador to “navigate in waters that have not yet been explored,” said Sanchez.
© Thomson Reuters 2021