August 8, 2022

El Salvador embraces bitcoin: will this event change history?

El Salvador embraces bitcoin: will this event change history?

Yuri Mazur, Head of Data Analysis Department, CEX.IO Broker:

El Salvador became the first state in the worldwhich officially recognized bitcoin as a legal means of payment. President Nayib Bukele, three minutes before the entry into force of the relevant law, tweeted: "In three minutes we will go down in history." However, the question remains open, will the adoption of bitcoin in El Salvador have any further prospects?

Analogue of the national currency

Bitcoin looks quite logical in the realities of the Salvadoran economy in the country for a long timethere is no own national currency. The American dollar is recognized as the official means of payment, which imposes certain difficulties in relation to the issue, and also made the state financial system dependent on the United States. Bitcoin, being essentially an international cryptocurrency, could theoretically become an analogue of the national currency.

Moreover, a significant part of the country's GDPaccounts for cross-border transfers, as emigrated residents send money to their families and relatives. Bitcoin could both attract new investments through crypto tourism and diversify the financial infrastructure, making it more mobile. Nevertheless, it is possible that with the introduction of the cryptocurrency, El Salvador made a false start, since in addition to the will of the state, support in the society is also needed, which, judging by the polls of the population, is not yet available in El Salvador.

El Salvador's society turned out to be unprepared for bitcoin

Despite the fact that bitcoin is the mostwell-known cryptocurrency, the attitude of society towards it remains very ambiguous. It is unlikely that an ordinary person in his daily life, and even when making payments in a store, thinks about the ideas of free currency, decentralized payments and blockchain. The main parameters for accepting a new means of payment are reliability and stability. As shown by public opinion polls in El Salvador, society is not yet ready for bitcoin, 70% of El Salvadorians have spoken out against the legalization of cryptocurrency in the country.

The main reasons for this reaction wereuncertainty of the majority of respondents (43%) in the prospects of the economy after innovations, as well as distrust of cryptocurrency in general (20%). In the wake of such sentiments, protests swept across the country at the end of August, and the opposition even called the law recognizing the first digital currency unconstitutional. Moreover, the initiative has not yet elicited a wide response from local payment services, which is a strong signal of the untimely introduction of bitcoin and cryptocurrencies in the country.

El Salvador embraces bitcoin: will this event change history?

The reaction of the world community

The reaction of global regulators did not differpositive. So, the World Bank announced that it would not help El Salvador in the development of bitcoin infrastructure, and the IMF saw the risks in cashing bitcoin payments. The exception was the Central American Bank for Economic Integration, which supported the initiative of the El Salvadorian authorities. It is noteworthy that in the crypto community, not everyone took the idea of ​​introducing bitcoin in the state positively.

The main message of the skeptics is thatcentralized introduction of bitcoin into the country's financial infrastructure and imposing on society as an official means of payment contradicts the very credo of cryptocurrencies - free digital assets. By the way, immediately after the news about the legalization of bitcoin in El Salvador was released, the crypto markets first grew, and then came under significant pressure. On September 7, BTC quotes went below the $ 50,000 level and at the moment, according to the CEX.IO exchange, dropped to $ 43,072. Perhaps this is also a signal that digital gold is not timely entering public finance, but this is unlikely.

And what about Russia?

In Russia, the official authorities pointed outunwillingness to recognize bitcoin. Press Secretary of the Head of State Dmitry Peskov said that equating cryptocurrency with monetary instruments does not bring anything for the financial and economic system. Thus, Russia is drifting more and more towards the model of behavior of the PRC. Most likely, the Central Bank of the Russian Federation will maximally clear the cryptocurrency market for the release of its own CBDC - the digital ruble. It is unlikely that the Russian authorities will delay the launch of the project, and the main task is to make the digital asset market as clear and transparent for the state as possible.

However, the regulator creates the infrastructurefor CBDC and actually conducts educational work with the public, reducing the risk of public rejection of the new form of money. At the same time, we assume that after the introduction of the digital ruble, it is quite likely that Russia will turn towards the development of the cryptoindustry.