President of El Salvador tweeted a report published by Bank of America which is one of the second-largest financial institutions in the U.S, the report outlines multiple benefits of bitcoin adoption in El Salvador. Recently, El Salvador has taken the decision to introduce and recognise Bitcoin (BTC) as legal tender which will give multiple major benefits to the consumer and businesses.

Four major benefits for introducing Bitcoin given by Bank of America

1) As per the report, Bitcoin as financial intermediaries for bank-based cross-border transfer will reduce the transaction cost. The worker remittance is around 24% of gross domestic product (GDP) in El Salvador. The Bank of International settlement (BIS) estimates average cost of bank-based cross-border transfer fees is over 10 % which when calculated on GDP make a large amount for El Salvador. As per the report “The idea is that Bitcoin could be used as an intermediary for the cross-border transfer, so that dollars are converted to Bitcoin by the sender and then converted back to dollars domestically by the receiver.”.

2) Moreover, 70% of adult population in El Salvador doesn’t have bank account. Using Bitcoin will raise access to electronic payment thereby promoting financial digitalization.

3) Further, introducing bitcoin and having proper technology infrastructure will enable customers and businesses to have greater choice in the form of payment through state-backed “chivo” bitcoin wallet. Finally, bitcoin adoption will enable El Salvador to attract foreign direct investment (FDI) by becoming a major bitcoin mining hub. This FDI could come from firms like Strike (developer of payment’s platform). ATM manufacturer, Bitcoin miners and other types of firms.

4) Being, a country of high volcanic activity, it can get FDI from bitcoin mining as it is electricity-intensive. As per President Nayib Bukele Sate owned geothermal company Lageo could produce clean energy from volcanoes to supply bitcoin minning.

Adoption of bitcoin earned criticism

Both analyst and Salvadorans criticized the cryptocurrency push introduced by President Nayib Bukele. As per recent survey 82.5 percent of people in El Salvador were not interested in receiving remittances in Bitcoin. Also, the International Monetary Fund (IMF) publicly denounce risks posed by crypto adoption.

Indrani bose

CBW - External Analyst

INDIA