El Salvador on
Tuesday became the first country in the world to recognise cryptocurrency as
legal tender. The decision to accept cryptocurrency, a relatively new mode of
currency exchange who value is sometimes deemed to be volatile, has been
watched by countries and businesses around the world. But why did El Salvador
decide to take the leap and what are the country’s reasons for recognising cryptocurrency?
President Nayib Bukele, explaining why the central America country needed to
accept cryptocurrency, said that the move will help Salvadorians living abroad save
millions of dollars in commissions on money they send home.
The issue of
remittances is indeed a big one for El Salvador. Last year, Salvadorians sent
home USD 6 billion. Most of the money came in to the United States. The amount
makes for 23% of El Salvador’s gross domestic product (GDP). Salvadorians,
however, are skeptical of the promise of cryptocurrency, especially because of
With El Salvador
taking the crypto leap, many countries around the world may seek to follow
suit. But extracting digital currency from the cyberspace is a power-intensive
process. The crypto industry’s global carbon dioxide emissions have risen to 60
million tonnes, which is equal to the exhaust from 9 million cars, according to
the Bank of America. The World Bank too has put a spotlight on the
environmental impact of cryptocurrencies.
Advocates of cryptocurrency
consistently pitch crypto as an innovation independent of government ‘caprice’.
This has many Salvadorians worried that granting of legal tender to
cryptocurrency could increase regulatory, financial and operational hazards for
financial institutions. There are rising concerns around terror financing and
money laundering as well.
The El Salvador
government has set up a fund of USD 150 million to enable conversion of
cryptocurrency into dollars, according to a Reuters report. However, doubts
persist over how sharp fluctuations in cryptocurrency will impact value in