Bank of America analysts stated that El Salvador’s decision to recognize Bitcoin as legal tender could facilitate money transfers, financial digitization, give consumers more options, and open the country up to US companies and digital currency miners.
Bank of America, the US’s largest bank, recognized many benefits that Bitcoin offers El Salvador in an extraordinary gesture of support.
According to the bank, the introduction of the Bitcoin could reduce the cost of sending remittances. These remittances account for almost a quarter the country’s gross national product. This could in turn increase Salvadorans disposable income.
Another benefit of Bitcoin adoption is the provision of banking services to non-bank customers. 70% of El Salvador’s population does not have access to a banking account.
El Salvador, like Iceland, could also attract foreign direct investment flows.
The report writes:
“Using Bitcoin for remittances could potentially reduce transaction costs compared to traditional remittance channels. The idea is that Bitcoin could be used as an intermediary for the cross-border transfer, so that dollars are converted to Bitcoin by the sender and then converted back to dollars domestically by the receiver. Volatility could be reduced if conversions happen automatically.
If Bitcoin indeed lower transaction costs, then for every Dollar the Salvadoran sends home, a greater portion of that Dollar could be received by the recipient’s increasing their disposable income and reducing the portion of remittances lost to financial intermediaries.
Another positive implication is financial digitalization, More than 70% of adult population in El Salvador does not have a bank account, For that reason democratizing access to electronic payments, through Bitcoin, has a progressive touch.
One could make the case that adopting Bitcoin as legal tender is about more choice to consumers, embracing innovation and doing more business with American companies.”
— Diario El Salvador (@elsalvador) August 1, 2021
El Salvador became the first country to accept Bitcoin as legal currency in June. This was a significant milestone in the development of BTC.
International Monetary Fund and United Nations Economic Commission for Latin America & the Caribbean criticized the decision to integrate BTC in the El Salvador finance system.
World Bank also Refuses El Salvador Request To Assist With BTC transition as World Bank sees concerns with Bitcoin environmental impact and transparency as reasons why they would not support El Salvador decision to accept Bitcoin as an officially accepted currency. (Read More).
As El Salvador has recognized Bitcoin as legal currency, many other Latin American countries have suggested that they are developing their own cryptocurrency strategy.