Central American countries are eagerly waiting to see if El Salvador’s adoption of Bitcoin as parallel legal tender cuts the cost of remittances, an important source of income for millions of people, the region’s development bank said.
President Nayib Bukele’s congressional allies have already approved legislation giving the cryptocurrency official currency status alongside the US dollar, a first in the world. The move takes effect in September.
“Everyone is watching if it goes well for El Salvador and if, for example, the cost of remittances drops substantially … other countries will probably seek that advantage and adopt it,” Dante Mossi, the executive president of the Central American Bank for Economic Integration (CABEI), told Reuters.
Mossi called the plan an “out of this world experiment” geared at increasing financial inclusion in a region where many people lack access to bank accounts or credit cards, and rely on money sent home from relatives living in the United States.
CABEI, the regional development bank, is giving El Salvador technical assistance on implementing the cryptocurrency, an important show of support as the World Bank declined to help, citing environmental and transparency drawbacks.
Mossi said the Central American nations that receive the most remittances are those most likely to favour using Bitcoin and underscored that CABEI had a “fiduciary obligation” to support El Salvador in its request for help.
“Guatemala, Honduras, and El Salvador are the countries that would have the most to gain if the adoption of Bitcoin lowered the cost of sending remittances,” said Mossi.
CABEI participated in a recent meeting of the Central American Monetary Council, part of the Central American Integration System (SICA), where participants asked about El Salvador’s Bitcoin plans and showed interest, he added.
The Central Bank of Honduras referred Reuters to a June 11 statement which said the bank does not prohibit, supervise or guarantee the use of cryptocurrencies as methods of payment in the country.
The governments of Guatemala and Honduras did not immediately respond to a request for comment.
Under 1 percent of the volume of global crossborder remittances are currently in crypto, according to Autonomous Research, but in the future crypto is expected to account for a larger slice of the more than $500 billion (roughly Rs. 37,13,950 crores) in for annual global remittances.
Bitcoin offers, in theory, a quick and cheap way to send money across borders without relying on traditional channels.
CABEI’s head of investments Carlos Sanchez said the bank’s technical assistance is focused on helping El Salvador design a legal framework for the adoption of Bitcoin and to make sure strict international money laundering protocols are adhered to.
The assistance is meant to help El Salvador “navigate waters that have yet to be explored,” said Sanchez.
© Thomson Reuters 2021