Rarely a week goes by now without a slew of headlines about the world’s biggest cryptocurrency — Bitcoin. The latest, though, seems to have captured the imagination of mainstream press: the declaration from President Nayib Bukele of El Salvador that he intends to make Bitcoin legal tender in his country.
Announced in a pre-recorded message aired during the world’s biggest Bitcoin conference in Miami last week, President Bukele said that he would be sending a bill to lawmakers to make Bitcoin legal tender in the Central American nation. Later, he added he would even consider making the cryptocurrency tax-free and help settle foreign workers that wanted to come to El Salvador to earn and save in Bitcoin.
Mixing as it did with the latest crackdown from the Chinese government that has seen it ban Bitcoin influencers and commentators from its biggest messaging platform, Weibo, as well as twitterings from Donald Trump on Bitcoin being a “scam” (and if anyone knows a good scam…) this latest news has not done much for the price of Bitcoin. Indeed, at the time of writing, Bitcoin is down 11% over 24 hours.
Bitcoin’s growing utility
What Bukele’s announcement on Bitcoin does underline, however, is its growing utility in emerging markets that frequently find themselves buffeted by global forces beyond their control. This was underlined by Zap’s Jack Mallers, who aired the President’s announcement during his presentation.
Frequently moved to tears, Mallers described a situation in which many El Salvadorians leave the country in order to earn money abroad, only to lose “half of it” in the process of sending it home, and extolled the virtues of Bitcoin’s transparent, decentralized and free-moving system.
Perhaps more poignantly, however, Mallers hinted at what he and Bukele perhaps believe could be the biggest benefit of Bitcoin to El Salvador’s economy by reading a passage from the whitepaper Mallers says he is currently working on in conjunction with the country’s authorities:
“Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador. […] in order to mitigate the negative impact from central banks, it becomes necessary to authorize a digital currency with a supply that cannot be controlled by any central bank and that is only altered in accord with objective and calculable criteria.”
Freedom from central bank control
For fans of Bitcoin, this narrative will be familiar. Indeed, during the founding of Bitcoin in 2009, specific reference was made to the intervention of central banks in the global financial crisis, with most Bitcoin maximalists firmly opposed to the money printing and corporate bailouts these institutions frequently enact.
Many believe that these policies have the potential to decrease the value of leading fiat currencies (20% of all US dollars in circulation were printed in 2020), which has the potential to cause a surge in inflation and in turn shrink the buying power of these currencies dramatically.
This is a situation all too familiar to citizens of some emerging economies, where hyperinflation has severely devalued many currencies. These include Venezuela, Nigeria and Zimbabwe, who now find themselves stuck in a cycle of ever-increasing inflation with an ever-decreasing currency that is making life increasingly difficult for average people.
El Salvador, which abolished its own currency in favor of the US dollar in 2001, does not face the same problem. It does, though, find itself in the unenviable position of being a tiny country of just 6 million people that has absolutely no control over its currency or the monetary policy that directs it.
Escaping inflation and preserving wealth
While the drivers may be different, the answer for some of these countries is increasingly looking like their exit from the current global monetary system in favor of a digital one.
For many in developing nations, Bitcoin provides a lifeline that allows people to earn and pay for goods and services in a currency that — as volatile as it is — does not depreciate at anything like the rate of their own. Bitcoin is a leading, growing, and viable currency that is fully decentralized: one of its biggest strengths and drivers of growth in these regions.
Many such countries are providing demonstrable use cases for Bitcoin: more than 20,000 retailers now accept Bitcoin in Venezuela, for example, while in Nigeria — where the central bank depreciated its currency (the naira) by 24% last year — Bitcoin trading has been surging.
Unlike El Salvador, though, Nigeria’s government is not interested in allowing its citizens to transact outside its tightly controlled monetary system and is currently embarking on an aggressive cryptocurrency crackdown that is seeing citizens’ bank accounts frozen and even some arrests.
Is the governmental tide finally turning for Bitcoin?
Indeed, this is perhaps why El Salvador’s announcement came as such big news this week: not for its ability to move the needle on Bitcoin’s price as much as a cough from Elon Musk can, but rather because of the warm reception Bukele is lending the cryptocurrency.
Paraguay is now even issuing similar mutterings via the Twittersphere, with congressman Carlitos Rejala hinting on Monday (June 7) at an upcoming announcement involving Bitcoin and Paypal in Paraguay.
Developing countries and their citizens have, arguably, the most to gain from Bitcoin and cryptocurrency. The removal of their economies and or/their labor from a global monetary system heavily stacked against them is akin, for some, to a fight for freedom. Not all developing governments, though, are on board and it’s a long road ahead before the US dollar finds itself challenged in any meaningful way. This could, however, be a good start.