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El Salvador President Nayib Bukele first proposed making Bitcoin legal tender in the country in June, and the top digital currency is now expected to be adopted in early September following the proposal’s ratification. The country’s opposition party, as well as the IMF, have criticized the new legislation. However, Bank of America, one of the country’s oldest banking institutions, has expressed support for the BTC initiative. President Bukele’s main goal was to minimize the cost of remittances, and Bitcoin may help him achieve that. Remittances from overseas currently account for one-fifth of El Salvador’s gross domestic product. As a result, Salvadorans would have more money to spend.
While El Salvador intends to mine Bitcoin using geothermal energy from its volcanoes, Bukele indicated that a mining hub is being constructed to run on cost-effective, clean, and sustainable energy. El Salvador’s goal of becoming a major Bitcoin mining hub could attract even more foreign direct investment. Bank of America went on to say that financial digitization is another beneficial result of Bitcoin acceptance and that democratizing access to electronic payments is progressive.
Clearly, one never shares Bank of America’s viewpoint. The International Monetary Fund (IMF) warns that adopting Bitcoin as a national currency might have “dire implications.” According to two IMF officials, any government that grants cryptocurrency legal cash status risks local prices becoming highly volatile.
Cryptocurrencies, according to the IMF, are directly tied to money laundering and terrorism financing, as well as having implications for macroeconomic stability and the environment. Because of the uncertainties surrounding new IMF money, rating firm Moody’s Investors Service recently cut El Salvador’s government’s rating. El Salvador’s opposition party sued the government in late June, claiming that the Bitcoin law was unconstitutional. Around 80% of the country’s citizens agree with the argument, claiming that the new law did not take into account negative consequences.