Central American countries are eagerly awaiting to see if El Salvador’s adoption of Bitcoin as a parallel legal tender lowers the cost of remittances, a major source of income for millions of people, the region’s development bank said.
Congressional allies of President Nayib Bukele have already passed legislation giving the cryptocurrency official currency status alongside the US dollar, a world first. The move will take effect in September.
Bukele has touted Bitcoin’s adoption as a way to facilitate remittances from Salvadorans living abroad. Bitcoin price in India stood at Rs. 37.86 lakhs from 1pm IST on 25th August.
“Everyone is looking to see if El Salvador is doing well and if, for example, the cost of remittances drops significantly … other countries are likely to seek that advantage and take it over,” said Dante Mossi, the executive president of the Central American Bank for Economic Integration. CABEI), told Reuters.
Mossi called the plan an “alien experiment” aimed at increasing financial inclusion in a region where many people do not have access to bank accounts or credit cards and depend on money sent home from relatives living in the United States.
CABEI, the regional development bank, is giving El Salvador technical assistance in implementing the cryptocurrency, a major show of support as the World Bank declined to assist, citing environmental and transparency drawbacks.
Mossi said the Central American countries that receive the most remittances are those most likely to use Bitcoin and underlined that CABEI had a “fiduciary obligation” to support El Salvador in its request for help.
“Guatemala, Honduras and El Salvador are the countries that would have the most to gain from adopting Bitcoin lowering the cost of sending money transfers,” Mossi said.
CABEI attended 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 Central Bank of Honduras referred Reuters to a June 11 statement saying that the bank does not prohibit, control 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.
According to Autonomous Research, less than 1 percent of the volume of global cross-border remittances is currently in crypto, but in the future, crypto is expected to account for a larger portion of the more than $500 billion (approximately Rs. 37,13,950 crores) for annual global remittances.
Bitcoin theoretically offers a fast and cheap way to send money across borders without relying on traditional channels.
Carlos Sanchez, CABEI’s chief investment officer, said the bank’s technical assistance is aimed at helping El Salvador design a legal framework for Bitcoin’s adoption and ensuring strict international money laundering protocols are adhered to.
The aid is designed to help El Salvador “navigate waters that have yet to be explored,” Sanchez said.
© Thomson Reuters 2021