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According to William Je, CEO of institutional investment firm Hamilton Investment Management, El Salvador’s adoption of Bitcoin (BTC/USD) as legal tender is not a model for the future, but instead an exception to the rule. The expert finds that the adoption calls into question the viability of decentralized cryptocurrencies as an analog for national currencies, subject to centralized control.
He pointed out:
Let’s remember that El Salvador is a developing economy and a nation with a history of currency changes. In 2001, El Salvador replaced its then domestic currency, the colón, with the US dollar. Its adoption of bitcoin as legal tender is down to the same challenge the nation faced 20 years ago, which is that just under a quarter of the country’s GDP comes from remittances from its citizens who live and work abroad.
Remittance fees cost El Salvador’s citizens more than $400 million a year according to the El Salvador government. What’s more, most of the people in the country do not have a bank account. Adoption of a cryptocurrency can create access to a variety of other financial services for the first time.
IMF and other global creditors warn against crypto adoption
Global creditors like the International Monetary Fund are increasingly expressing concern over adopting a stateless, decentralized cryptocurrency like Bitcoin, which is a highly speculative asset. According to Je, it’s highly unlikely that any major developed economy will take El Salvador’s lead.
More and more countries are considering their own digital currencies
At the same time, a rising number of countries are considering launching digital currencies of their own. Data of the Atlantic Council shows just under 90 central banks around the world are exploring the idea of launching a CBDC.
China has been testing the e-CNY (digital yuan) since April 2021. The US is exploring a digital dollar through two programs. The Bahamas launched a digital version of its dollar and Nigeria introduced the eNaira this year.
UK to launch CBDC stablecoin in 5 years?
In the UK, the Bank of England and HM Treasury are in talks surrounding the future launch of a CBDC stablecoin, expected to happen between 2025 and 2030. Individuals and businesses will be able to use this digital currency for their everyday payments needs, the Bank of England said. It will be used in parallel to cash and bank deposits.
Je commented the emerging CBDC trend among central banks as a final note:
A CBDC could be created from thin air by central banks with quantitative easing just as with traditional currencies – but this arguably defeats the object of a digital-based currency.