El Salvador is making history today by becoming the first country in the world to make Bitcoin official legal tender – and other nations will soon follow suit, predicts the CEO of one of the world鈥檚 largest financial advisory, asset management and fintech organisations.
The prediction from Nigel Green, chief executive and founder of deVere Group, comes ahead of today’s adoption of the cryptocurrency as national currency alongside the U.S. dollar in the small Central American country.
Currently, outside of the U.S. and its territories, there are seven other sovereign nations that use the U.S. dollar.
Mr Green comments: 鈥淓l Salvador is making history with a bold jump into the future of money 鈥� which is, inevitably, digital 鈥� by officially recognising Bitcoin as legal tender together with the U.S. dollar.
鈥淥ther countries, in particular other Central and South American nations, will be watching with great interest to see if the experiment works to shore up El Salvador鈥檚 shaky economy.
鈥淭here鈥檚 no doubt that there are major risks attached to the decision made by the young maverick president, Nayib Bukele.
鈥淭hese include that there is a possibility that El Salvador could run out of dollars and that institutions, such as the IMF, might not look favourably on a nation that has adopted Bitcoin.鈥�
The risks prompted some El Salvadorans last week to take to the streets to protest against the adoption of Bitcoin as an official currency.
He continues: 鈥淗owever, I鈥檓 giving El Salvador鈥檚 Bitcoin move a cautiously optimistic welcome for five key reasons
鈥淔irst, El Salvador chose to be reliant upon a major 鈥榝irst-world鈥� currency, the U.S. dollar, to complete transactions.聽But this reliance on another country鈥檚 currency also comes with its own set of, often very costly, problems.
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鈥淭he El Salvadoran government cannot print its own money and the economy cannot benefit from the U.S. Federal Reserve鈥檚 money-printing agenda. Therefore, El Salvador must either borrow or earn the dollars it needs.
鈥淎 stronger U.S. dollar can have a crippling impact on emerging-market economies, such as that of El Salvador.
鈥淏y adopting a cryptocurrency as legal tender these countries then immediately have a currency that isn鈥檛 influenced by market conditions within their own economy, nor directly from just one other country鈥檚 economy.
鈥淏itcoin operates on a global scale and is, as such, largely impacted by wider, global economic changes.
鈥淪econd, central banks around the world have been devaluing their currencies, while Bitcoin鈥檚 supply is not only limited, but also new coins are mined at a decreasing rate too. El Salvadorans could, therefore, find their new adopted currency gives them more purchasing power when they buy from overseas.鈥�
He goes on to say: 鈥淭hird, El Salvador’s adoption of Bitcoin could cut the cost of remittances, a major source of income for millions of people. The remittances would be made faster and easier too, compared to money transfer services or bank wires, so remittances are likely to further increase.
鈥淔ourth, by diversifying the nation鈥檚 dollar reserves into the cryptocurrency, there could be additional opportunities to earn yield, meaning the size of the reserves would grow.
鈥淎nd fifth, El Salvador could benefit from significant聽foreign investment and capital inflows as digital asset organisations are likely to relocate to the Bitcoin-friendly nation.鈥�
Clearly, if the adoption proves to be a success it will be a massive step for Bitcoin鈥檚 mass adoption as other countries will follow El Salvador鈥檚 lead.
鈥淒ue to their similar reliance on remittances, amongst other factors, other nations, including Panama, Guatemala and Honduras, could also adopt Bitcoin should the process in El Salvador run smoothly and there鈥檚 greater economic growth, stability, and levels of financial inclusion as a result.鈥�
The deVere CEO concludes: 鈥淲e鈥檙e giving a measured welcome to the move that could make a hugely positive impact on this Central American nation and its population.
鈥淭his is truly a landmark moment in the evolution of digital currency.鈥�
