Emerging markets eye crypto as currency after El Salvador adopted it as legal tender
- Emerging markets are pioneering digital and crypto currency usage, trading and mining.
- Since El Salvador voted to adopt bitcoin as legal tender, a slew of politicians have said they want to follow suit.
- Many showed their support through tweets or by adding the symbolic laser eyes to their Twitter pictures.
- For more stories go to www.BusinessInsider.co.za.
Cryptocurrencies can often stir up concern among conservative investors and few are as conservative as central banks, and regulators are definitely sceptical. But this does not appear to be the case in emerging markets.
Politicians, central bankers and regulators across the developed world might be a little wary, but those in the emerging world are pushing the boundaries of crypto adoption, by pioneering how digital tokens are used, traded and mined.
In fact, they could become crypto's next big frontier, as a slew of politicians from Brazil, and Argentina, and even Tonga have publicly stated that they want their countries to follow the example of El Salvador in making cryptocurrencies legal tender.
El Salvador's Congress approved a law last week that made the small Central American country the first to accept bitcoin as legal tender, giving it equal status to the US dollar in El Salvador.
"Other countries will follow El Salvador's lead for two main reasons, making bitcoin legal tender will attract Bitcoin entrepreneurs and ease the burden of sending money internationally." Edward Moya, senior market analyst at OANDA said.
Indeed, since El Salvador's president Nayib Bukele first announced the bitcoin bill, a slew of other emerging markets politicians have said that their own countries should follow suit.
Paraguayan congressman Carlitos Rejala tweeted "This week we start with an important project to innovate Paraguay in front of the world! The real one to the moon #btc & #paypal".
Gabriel Silva, a congressman from Panama said his country could not afford to be left behind and a broader adoption of crypto was necessary for the country to attract technological innovation and entrepreneurship.
Central banks around the world are considering launching their own digital currencies that would be centrally managed and regulated - a key difference to existing cryptocurrencies like bitcoin.
The Federal Reserve and European Central Bank are still in the very early stages of looking into a digital currencies, while many emerging-market central banks are making fast progress in the area.
"Their use in small-scale trading and remittance transfers from workers abroad are among the main reasons for the popularity of crypto currencies in EM. Central bank digital currencies (CBDC) could also facilitate getting social transfers to the poor and improve transparency of the large informal economy. These channels could be positive for economic growth in EM," a recent Bank of America research note said.
The popularity and value of crypto currencies like bitcoin and ether has boomed over the past year. They're both an asset class in their own right, as well as a means of payment for goods and services. Various sports teams like the Dallas Mavericks or Oakland A's for example accept cryptocurrencies as payments for tickets or merchandise.
In El Salvador, a whole town was already running on crypto - El Zonte, also known as 'Bitcoin Beach'. Soon the whole country could now be working in similar ways and, if some politicians get their will, other emerging markets countries could as well.
El Salvador's decision has however been received cautiously by regulators and politicians in developed markets. Bank of England Governor Andrew Bailey said just this week that cryptocurrencies are too volatile to be used as a payment form.
And the World Bank rejected El Salvador's request to help with the implementation of bitcoin over environmental concerns linked to crypto mining. Further, regulators have shown concern about the use of crypto to fund illicit activities.
Bitcoin is already up by 300% in the last 12 months and, if more countries adopt it, it should stand to gain even more, even though regulators are tightening their scrutiny of the market, analysts said.
"Bitcoin becoming legal tender in other countries should support the bull case for bitcoin," OANDA's Moya said.
Get the best of our site emailed to you every weekday.
Go to the Business Insider front page for more stories.