Bitcoin as a legal tender: solution for hyperinflation or socioeconomic experiment?

Apr 20, 2022
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           From September of 2021, Salvadoran businesses adapted to an unprecedented move never seen before by any other nation, the official introduction of Bitcoin as a legal tender, alongside their already established monetary currency, the USD.

This suddenly changed the panorama for the regular citizen of El Salvador, and it has turned heads worldwide, as other nations might be following suit if the economy of the country suddenly surges thanks to this endeavor, which some label as risky, and some deem as very forward-thinking or even future proof, as fiat money worldwide is always prone to speculative and manipulative measures from governments and official entities.

There has been a boom in tourism for the Central American nation, sparked by the adoption of Bitcoin, and at the same time, many onlookers consider this a move that could brand El Salvador as a regional tech hub not only for central and south America but potentially worldwide, if the plans President Nayib Bukele deem fruitful.

This also came with its fair share of negativity and concern, as cryptocurrencies could seem like the holy grail for people trying to fight against inflation and centralized banking, but it is still a volatile market, prone to the ebb and flow of investor activities, whales and even the robustness of the technology and what would yield for its future.

Bitcoin could also incentivize some of the nation’s lingering issues since cryptocurrencies function as a decentralized payment method, it could potentially be used as a tool for clandestine operations such as drug trafficking, aiding the already powerful Salvadoran gangs partaking in such crimes.

The executive board of the International Monetary Fund (IMF) has even intervened themselves, urging Bukele to reconsider his decision of making Bitcoin their legal tender due to the high volatility, risks, and liabilities that this might cause to El Salvador’s monetary ecosystem.

That said, even with all of the risks involved in the adoption of a cryptocurrency as a licit monetary system, a southwestern U.S. state Senator Wendy Rogers has already passed a bill striving to make Bitcoin a legal tender in the state of Arizona, allowing peer to peer transactions of the cryptocurrency as a lawful medium for citizens to pay for goods, services, and even public charges, debts, taxes and dues in BTC, turning Arizona into the first US state to consider crypto for such ends.

Crypto-friendly tourism

          One of the side effects of the adoption of bitcoin for the nation of El Salvador has been the exponential growth of their tourism industry, as it has increased by 30 percent since the boom of crypto started, back in September of 2021, and in most of their touristy sites and volcanic beaches, bitcoin already became a hit for the local population, giving tourists another reason to visit the Central American country.

This rise in tourism can also be observed in the surge of reservations for hotels and inns, most of which also allow visitors to pay for their stay directly with bitcoin.

Bukele himself has plans to boost tourism even further, by creating a ‘Bitcoin City’, a city free of taxes for its residents, located purposely near the base of an extinct volcano, with the hopes of mining new bitcoins by utilizing its geothermal energy.

Risks and potential drawbacks

          The wild swings in price and volatility related to cryptocurrencies have already become apparent to the regular citizen of El Salvador, as early adopters of Bitcoin back when the bill was instituted, have been hit with a 15 percent decrease in its price, making it impractical to some smaller businesses and independent sellers, as a plunge in price could devaluate their savings drastically.

The risks regarding the fluctuating price of bitcoin become even more evident to those Salvadorians in the lower economic classes, as studies have shown that one in five residents of El Salvador lives on 5 Dollars a day. For them, a big price swing is not something they could have the luxury of tolerating, and this causes a portion of the citizens to actively reject the utilization of crypto for their day-to-day living.

The president of El Salvador is surely betting on the success of bitcoin, even if this bet might involve the treasury of his country, at the end of the day, we are still just in the infancy of cryptocurrencies when thinking in a broader sense, and the full effects of Bukele’s decision are still to be shown in the years to come.

What we know for sure is that the success of Bitcoin in El Salvador would boost the adoption of cryptocurrencies worldwide and into the mainstream. Why not start preparing for mass adoption by creating your own cryptocurrency for free at MintMe!?

Isaac Vitales