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Starting with El Salvador, many countries are beginning to seriously discuss making Bitcoin legal tender. El Salvador’s plan went into effect in September, and similar plans have gained traction in Brazil. Other countries’ legislatures have also begun seeing Bitcoin bills gain popularity among some politicians.
But why would a country want to implement Bitcoin as legal tender? What are the benefits of such a plan, and what does it mean for investors who have crypto in their portfolios?
Bitcoin is a digital currency that is intended to be used a decentralized store of value. It’s something of a cross between a digital ledger and a gold coin. Bitcoin exchanges can happen instantaneously over the internet, and there are no fees associated with using the coins. This makes them very popular for countries that engage in a lot of international commerce.
In El Salvador, for example, the main why the country adopted Bitcoin as legal tender is remittances, the practice of El Salvadorans abroad sending money home to family. Normally, sending remittances home incurs fees, but Bitcoin sidesteps this issue.
There are also numerous people in El Salvador who don’t have bank accounts and rely on cash to make their transactions. Bitcoin is seen by some in the country as a way to allow unbanked populations to participate in digital commerce.
Bitcoin isn’t seen by many in the US as an actual currency. Instead, it’s treated more like a security by most investors. People talk about its potential growth, but not how widely accepted or stable it is. As such, accepting Bitcoin as legal tender has been called “risky” by some financial institutions, like the International Monetary Fund and the World Bank.
Both the IMF and the World Bank even warned El Salvador’s government that cryptocurrency is not stable. Since Bitcoin has been known to swing wildly from $50,000 to as low as $30,000, some analysts fear that it could inject an element of uncertainty and instability into the country’s economy.
Some investors insist that more countries adopting Bitcoin as legal tender can only be good for the standard. Their argument is that Bitcoin will become more stable as more economies rely on it. Whether this is the case or not is impossible to say. With only a handful of countries even seriously considering using Bitcoin as legal tender, there just isn’t enough information yet.
