In Bitcoin We Trust?
Coordinated cross-border policies are needed to ensure that cryptocurrencies don’t do more harm than good in developing countries. Unless both the public and private sectors embrace critical reforms, people and governments will increasingly be attracted by low-cost, high-risk, and murky alternatives to traditional banking.
LONDON – Many regard the market for Bitcoin – the world’s leading cryptocurrency – as a game of winners and losers played out among hedge funds, amateur investors, geeks, and criminals. The huge risk inherent in a highly volatile anonymous digital currency is best left to those who understand the game well, or who don’t really care because they can mitigate the risk or absorb any losses. But Bitcoin recently has become more attractive for countries and individuals with limited access to conventional payment systems – that is, those least equipped to manage the underlying risk.
Earlier this month, El Salvador became the first country to adopt Bitcoin as legal tender, enacting legislation that will take effect in September. This means that Bitcoin can be used to pay for goods and services throughout the country, and recipients are legally obliged to accept it.
Salvadorans are not new to this type of monetary experiment. The US dollar became legal tender in El Salvador in 2001 and is the currency used in domestic transactions. At that time, the government of President Francisco Flores allowed the dollar to circulate freely alongside the national currency, the colón, at a fixed exchange rate.