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Commentary: Bitcoin is now legal tender in one country. Regrets may soon follow

Many regard เว็บสล็อตxo the market for Bitcoin – the world’s leading cryptocurrency – as a game of winners and losers played out among hedge funds, amateur investors, geeks and criminals.

The huge risk inherent in a highly volatile anonymous digital currency is best left to those who understand the game well, or who don’t really care because they can mitigate the risk or absorb any losses.

But Bitcoin recently has become more attractive for countries and individuals with limited access to conventional payment systems – that is, those least equipped to manage the underlying risk.

NOT THE FIRST MONEY EXPERIMENT BUT BIG RISKS REMAIN

Earlier this month, El Salvador became the first country to adopt Bitcoin as legal tender, enacting legislation that will take effect in September. This means that Bitcoin can be used to pay for goods and services throughout the country, and recipients are legally obliged to accept it.

Salvadorans are not new to this type of monetary experiment. The US dollar became legal tender in El Salvador in 2001 and is the currency used in domestic transactions.

At that time, the government of President Francisco Flores allowed the dollar to circulate freely alongside the national currency, the colón, at a fixed exchange rate.

Dollar advocates argued that the expected benefits of macroeconomic stability would outweigh El Salvador’s loss of economic sovereignty, monetary independence, and even seigniorage – the difference between the cost of producing coins and banknotes and their face value.

But purchasing power suddenly plummeted and left the economy even more dependent on remittances, which have averaged about 20 per cent of GDP per year over the past two decades.

THE UPSIDE: REDUCING REMITTANCE COSTS

El Salvador’s president, Nayib Bukele, tweeted that Bitcoin will facilitate remittance transfers and considerably reduce transaction costs. The fees that migrants must pay to send their money home are scandalously high, despite many calls by the United Nations and the G20 to reduce them.

According to the World Bank, the average global cost of sending US$200 internationally is approximately US$13, or 6.5 per cent, well above the Sustainable Development Goal target of 3 per cent.

Nonetheless, in 2020, low- and middle-income countries received remittances of US$540 billion – only slightly less than the 2019 total of US$548 billion, and much larger than these countries’ inflows of foreign direct investment (US$259 billion in 2020) and overseas development assistance ($179 billion in 2020).