By: Staff Writer
September 14, 2021
Since El Salvador made bitcoin legal tender over two weeks ago other Central American countries have joined the cryptocurrency craze despite El Salvador working through bumps and hitches in regularizing bitcoin as legal tender.
El Salvador’s bitcoin roll-out was hit by digital wallet glitches and hiccups as people became frustrated last week with the process of using bitcoin. What happened to El Salvador’s original currency, the colon, you may ask?
Well the colon was replaced by the US dollar in 2001 by then president Francisco Flores, paving the way for the Central American country to play around with the idea of using a crypto currency like bitcoin in the future as we have now.
Don’t get it twisted, however, El Salvador adopting bitcoin is not the same as The Bahamas rolling out its digital currency, the Sand Dollar which was piloted at the end of 2019, or the Eastern Caribbean Central Bank’s(ECCB) “d-cash” that was launched in the early part of 2021.
Digital currencies and cryptocurrencies sound the same, but they are not the same. A cryptocurrency is not backed by anything of any significant value except for the block-chain technology that supports it. That is to say, it has no inherent value.
A digital currency on the other hand, which cryptocurrencies may be a part of, is not all private sector and block-chain technology derived. For example with the Bahamian Sand Dollar, it is backed by the Central Bank of The Bahamas and is considered legal tender in The Bahamas and the bank takes responsibility for the issuance of the digital currency. The same can be pretty much said for the d-cash.
What El Salvador is doing is something that is wild, risky and can become a ticking time bomb as they are placing their country’s economic and monetary future on what some financial experts have called a “fad” and a “bubble waiting to pop.”
While bitcoin stocks have been exploding over the last few years, with the value of one bitcoin equalling to over $40,000 USD, causing it to be more than grossly inflated for an asset that has no backing of any one central authority.
This leaves one to ponder that due to the risk, why would El Salvador go this route and not the route of a digital currency like The Bahamas or the ECCB?
In addition, other Central American countries like Costa Rica, Panama, Guatemala and Honduras are getting in on the cryptocurrency phenomenon.
To get an idea of how favourably the Costa Rica government views cryptocurrency, it is one of the few countries in the world where workers can legally be paid in crypto. The only drawback here is that salary payments up to the minimum wage must be paid in fiat and everything above that can be paid using cryptocurrency.
Honduras opened up its first cryptocurrency ATM last month, which was installed in an office tower in the capital of Tegucigalpa by TGU Consulting Group, a Honduran based firm, but users can also acquire bitcoin and ethereum using the local lempira currency,
The day after El Salvador adopted Bitcoinas as legal tender, Panamanian Congressman Gabriel Silva introduced a bill designed to provide “legal, regulatory, and fiscal certainty for the use, holding and issuance of digital value and crypto assets in the Republic of Panama.”
The Bill, entitled “Crypto Law: Making Panama Compatible with the digital economy, blockchain, crypto assets, and the internet,” was announced on Twitter by Silva on Wednesday. In his tweet, Silva said that the bill had the potential to create jobs, attract investment and foster greater government transparency.
Guatemala’s central bank vice president Jose Alfredo Blanco on the other hand said the bank was studying the possibility of a local digital currency that would be called iQuetzal, which would not be a cryptocurrency but a digital currency also backed by the Central Bank (CBDC).
So why are other Central American countries buying into the bitcoin and digital currency wave?
It could be that digital currencies are cheaper to manage and are the wave of the future and they are more easily tracked than physical currency and more easily stored away.
Then, with regard to El Salvador with their bitcoin experiment: It may just be misguided policy, with policymakers thinking that a cryptocurrency and a CBDC are the same thing, but they are not.
Also, there may be a bit of criminality involved in this. Not to cast any aspersions on any particular leader or group of leaders, but it is common knowledge that cryptocurrencies are the tools of the underworld and those who use it have an easy access into the world of crime and illicit activities that would be harder for international authorities to track.