El Salvador's Adoption of Bitcoin as Legal Tender Undercuts US Monetary Policy, Expert Says

© REUTERS / JOSE CABEZASA sign that reads "Exclusive bitcoin register" is seen in a Starbucks store, where the cryptocurrency is accepted as a payment method, in Antiguo Cuscatlan, El Salvador September 8, 2021
A sign that reads Exclusive bitcoin register is seen in a Starbucks store, where the cryptocurrency is accepted as a payment method, in Antiguo Cuscatlan, El Salvador September 8, 2021 - Sputnik International, 1920, 09.09.2021
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WASHINGTON (Sputnik), Ekaterina Chukaeva - By adopting bitcoin as legal tender, El Salvador is effectively replacing the monetary policy of the US and this could sput worldwide adoptions and attract foreign investment into the country, Bobby Ong, co-founder and COO of Coingeckо told Sputnik.
Earlier this week, the Latin American nation made headlines after becoming the world's first to accept cryptocurrency as legal currency. By the move, the authorities hope to save millions a year on fees charged for sending money from abroad, predominantly from Washington.
"El Salvador is an interesting testbed for Bitcoin to be adopted as a national currency because the country does not use its own national currency but is a dollarized economy. From that standpoint, replacing USD [US dollar] with Bitcoin is an interesting angle because the country basically replaces the monetary policy of the US government with that of Bitcoin's fixed programmed monetary policy," Ong said.
He added that there was an argument to be made that the risk for the country may be even lower compared to a country that already has a well-functioning national currency.
Other nations with dollarized economies will be following this economic experiment closely to decide whether they can also follow in their footsteps, Ong noted.
"The pioneers in this space will attract the attention of the global crypto community and this could be a catalyst to attract foreign direct investment into the country," he said.
Meanwhile, the El Salvador government decision was not welcomed by hundreds of the country's residents who took part in a rally against the adoption of bitcoin the day it became legal tender. Those protesting, including social and civil organizations and peasants, said they viewed the move as solely a money-laundering attempt. The opposition, which accuses Salvadoran President Nayib Bukele of pursuing this policy for personal enrichment, claims that bitcoin is legalized in light of a possible dollar deficit.
© JOSE CABEZASA man takes part in a protest against the use of Bitcoin as legal tender, in San Salvador, El Salvador, September 7, 2021.
A man takes part in a protest against the use of Bitcoin as legal tender, in San Salvador, El Salvador, September 7, 2021. - Sputnik International, 1920, 09.09.2021
A man takes part in a protest against the use of Bitcoin as legal tender, in San Salvador, El Salvador, September 7, 2021.
Ong said it was still early to speculate on just how widespread the adoption of the cryptocurrency will be in the country, especially given that the rollout was shortly followed by a nationwide outage of the payment service and remains dogged with technical difficulties.
"Whether the residents actually use Bitcoin in their day-to-day economic activity remains to be seen. The rollout of the government wallet has seen some hiccups. Additionally, Bitcoin value is not stable and is very volatile. It remains to be seen how the residents who accept Bitcoin for trade of goods and services convert their Bitcoin to a stable currency," he said.
Meanwhile, hours after the announcement, the price of bitcoin decreased by 9.11% to $47,010 on the Binance exchange, the largest cryptocurrency exchange in terms of the trading volume.
"The correction that happened on the day El Salvador officially adopting Bitcoin was also a classic example of 'buy the rumor, sell the news,'" Ong concluded.
On Wednesday, Bitcoin continued to lose ground, closing at $46,000, which was down by 1.7 percent.
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