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What Is Legal Tender – and How Can a Cryptocurrency Become One?

The way we save, send and receive money is evolving – though some countries are moving faster than others.

In September 2021, El Salvador became the first to adopt the popular cryptocurrency Bitcoin as legal tender, forcing all businesses to accept it as payment. Citizens in this small Central American country downloaded the government’s digital wallet app – known as Chivo – to begin using Bitcoin alongside the US dollar, which has remained the country’s other legal tender. More than 200 new cash machines were installed across the country to help with the transition.

Financial experts in El Salvador and around the world reacted differently to the move. While some hoped it would boost economic development in the impoverished country, there were widespread protests due to a lack of confidence from citizens. International bodies such as the World Bank and the International Monetary Fund (IMF) also warned against adopting such a volatile currency, which could lead to instability and inflation.

So how has El Salvador fared since its ground-breaking decision, and will other countries follow in its government’s footsteps?

How is Bitcoin working out for El Salvador so far?

Several months on, the IMF has continued to publicly urge El Salvador to reverse its decision and remove Bitcoin’s legal tender status. The coin is famous for its potential to boom and crash in value, and by late January 2022 had lost around half of its value recorded in the previous November.

Instability isn’t the only reason why the country has struggled with Bitcoin so far, however. According to data from late 2020, almost 70% of the population is unbanked – and many citizens don’t have smartphone or internet access. There are understandable concerns, too, that many citizens don’t adequately understand Bitcoin – or cryptocurrency in general.

Government enthusiasm for bitcoin has remained high all the same. The country held a ‘Bitcoin Week’ in November of last year, where its president announced plans for a ‘Bitcoin City’ complete with residential and commercial areas, museums, an airport – and tax incentives for residents.

Will other countries follow El Salvador’s lead?

Despite El Salvador’s rocky start with Bitcoin, some – including El Salvador’s president and the CEO of deVere Group, a global financial giant – predict that more countries will follow suit in 2022.

Cryptocurrency holds appeal for those with weak national currencies, as well as those relying on the established currencies of other nations. Unlike these currencies, Bitcoin is affected by wider global market conditions.

It’s also hoped that cryptocurrencies can improve financial inclusion in developing countries, where many people are excluded by traditional banks and financial services providers. Potential candidates include Panama, Paraguay and Guatemala.

Would you be keep to adopt Bitcoin in the near future?

Jeff Campbell