El Salvador Shows Crypto is the Future of Currency
Cryptocurrency in the past decade has seen a massive boom in usage and relevance to the current economic climate. This phenomenon has occurred in the United States and globally.
Case in point, Bitcoin, the oldest and most highly valued cryptocurrency, was adopted as an official legal tender in the Central American country of El Salvador. So far, despite some logistical drawbacks with implementing the system, it has been successful and likely will only see greater success going forward.
“Only a few months into the initiative, there are already more bitcoin wallets than traditional bank accounts open in El Salvador.”
El Salvador is a relatively poor and underdeveloped nation, with a GDP per capita of around $4,000 and a Human Development Index score of .673, comparable to countries like Vietnam and India. Previously, the government of El Salvador had been using the US dollar as its official currency. However, with the changes made in September 2021, Bitcoin is also accepted as a second official currency.
This is significant because inflation has a greater impact on those living in poverty than those with more wealth. Whereas a 6% increase in the price of goods might be handled fine by those with more financial cushion, it can be catastrophic to people already struggling to get by, which is particularly common in a country like El Salvador. The original adoption of the US dollar was a response to a period, from 1977 up until the adoption of Bitcoin, of consistent 10% annual inflation of the previous currency, the Salvadoran Colon. But with the US dollar experiencing a new inflationary period, reaching over 7% currently, giving the people of El Salvador another option was a positive decision.
Bitcoin is a safeguard against inflation by its nature. It is inherently deflationary because there is a limited supply of 21 million bitcoins. Therefore, it can be transitioned as an official currency to any nation beneficially as a bulwark against inflation, significantly helping the purchasing power of impoverished people. So far, the move has been largely successful so far in El Salvador, and only a few months into the initiative, there are already more bitcoin wallets than traditional bank accounts open in the country!
Complications have arisen regarding acceptance of Bitcoin at various stores because the technology infrastructure has not been expanded the same way it has been for accepting cash or cards. However, this problem will likely be remedied in the coming years as the infrastructure develops.
Cryptocurrency is something credit unions must consider as they set forth future strategies. Bitcoin and other cryptos aren’t going away, and if anything, it’s going to expand its influence further. Credit unions must be able to adapt their technology infrastructure to be able to handle this new kind of currency.
