El Salvador recently became the first country in the world to adopt a bitcoin (BTC) law on. From September, the Central American country recognizes the cryptocurrency as legal tender alongside the US dollar.
President Nayib Bukele receives a lot of criticism from large financial institutions for this. The Bank of America (BoA), one of the largest banks in the United States, recently unexpectedly listed four advantages:
#ElSalvador President @nayibbukele share this morning some of the opportunities that @BankofAmerica see in El Salvador, after the adoption of the #Bitcoin pic.twitter.com/08D1RuGFYI
– El Salvador newspaper (@elsalvador) August 1, 2021
According to BoA, bitcoin as a legal tender could streamline international transfers, promote the digitization of finance, offer consumers more choice and open the country to crypto-mining.
The first point in particular could make a big difference. BoA reports that cross-border settlements are responsible for no less than 34% of the gross national product (GNP). However, much of this is wasted on transaction costs.
“Using bitcoin for wire transfers can potentially reduce transaction costs compared to traditional transfer channels. If using bitcoin does indeed reduce transaction costs, then for every dollar sent home by the Salvadoran diaspora, a greater portion of that dollar could be received by recipients, increasing their disposable income and reducing the proportion of remittances lost to financial intermediaries. is reduced. However, it is unclear how transaction fees for bitcoin would compare to traditional remittance channels.”
Furthermore, BoA reports that 70% of Salvadorans do not have a bank account and that Bitcoin can offer progress on this. The BoA also disagrees with people who call the law coercive; it is an option and merchants will have the option to convert their BTC directly to the dollar. Finally, BoA mentions that bitcoin can create a new foreign flow of money by attracting mining companies.
“Generally negative development”
Although BoA is generally very bullish is about El Salvador’s macroeconomics, isn’t it because of bitcoin. Diving a little deeper, we see that BoA considers the risks of the bitcoin law to outweigh the potential benefits. So they see it as a negative development, but they think the market is overly negative about it:
“We believe that the assertiveness with which the Bukele administration conducts its policies could be an asset – not a liability – for the economy.”
– @BankofAmerica’s analysis on El Salvador. pic.twitter.com/4XM8n3K3c1
– Nayib Bukele ???????? (@nayibbukele) August 1, 2021
“The risks to macroeconomic stability probably outweigh the potential benefits, so this is an overall negative development in our view. But the market is overly pessimistic about it and overlooks all the benefits, even if those benefits are admittedly uncertain.”
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