June 10 2021: El Salvador has become the first country to adopt Bitcoin as official legal tender.
The Legislative Assembly of El Salvador on early Wednesday voted to pass a bill that declared Bitcoin, the world’s largest cryptocurrency by market capitalisation, as legal tender, according to the Communications Secretariat of the Presidency of the Republic of El Salvador. It secured 62 out of 84 votes.
But it will not be the last, predicts Nigel Green, chief executive and founder of the deVere Group , one of the world’s leading financial advisory and fintech organisations: “Some larger, more powerful countries are trying to quash or slow the inevitable shift to borderless, global, digital currencies.But this small Central American nation has embraced the biggest one of them all – Bitcoin – and recognised it as official legal tender. El Salvador has made history and become a true pioneer of the digital age. Where El Salvador has led, we can expect other developing countries to follow.”
“This is because low-income countries have long suffered because their currencies are weak and extremely vulnerable to market changes and that triggers rampant inflation.This is why most developing countries become reliant upon major ‘first-world’ currencies, such as the U.S. dollar, to complete transactions. But reliance on another country’s currency also comes with its own set of, often very costly, problems.”
A stronger U.S. dollar, for example, will weigh on emerging-market economic prospects, since developing countries have taken on so much dollar-denominated debt in the past decades.
The deVere CEO goes on to say: “By adopting a сryptocurrency as legal tender these countries then immediately have a currency that isn’t influenced by market conditions within their own economy, nor directly from just one other country’s economy. Bitcoin operates on a global scale and is, as such, largely impacted by wider, global economic changes.”
In addition, cryptocurrencies could also help bolster financial inclusion for individuals and businesses in developing countries as they can circumnavigate the biases of traditional banks and other financial services providers.
Green concludes: “There will no doubt be critics – probably those based in wealthy countries – who will knock this bold move by El Salvador. But I believe we should welcome the forward-thinking approach to solving complex issues.”
Meanwhile, back in India… indecision
There is currently no legislative framework that governs cryptocurrencies in India. In the past decade, India has generally held a cautious position towards use and transactions involving cryptocurrencies.
The first formal restriction on the use and transaction involving cryptocurrencies was affected by circular issued by the RBI in 2018. The circular specifically barred banks and other financial institutions from dealing with cryptocurrencies based platforms and any form of virtual currencies.
The Supreme Court struck down the 2018 RBI circular banning all the regulated entities from using cryptocurrencies in Internet and Mobile Association of India v. Reserve Bank of India (2020 SCC Online SC 275).
The order resulted in a revival for cryptocurrency-based platforms in India. The Lok Sabha Bulletin for the present Parliamentary Session indicates that a new bill, namely, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is likely to be tabled before the Parliament.
One of the reasons as to why India perhaps has been leaning towards banning cryptocurrencies is the possibility of the cryptocurrencies being used for financing illegal activities (such as funding terror, money laundering, tax evasion, etc.)…. curtailing such activities may not be possible by banning cryptocurrencies in India.(Financial Express)
Global cryptos undeterred
Global digital currency exchanges are exploring ways to set up in India, following in the footsteps of market leader Binance, industry sources told Reuters, while the government in New Delhi dithers over introducing a law that could ban cryptocurrencies.
Opponents of the potential ban say it would stifle the economic power of a tech-savvy, young nation of 1.35 billion people. There is no official data, but industry analysts reckon there are 15 million crypto investors in India holding over 100 billion rupees ($1.37 billion). (Reuters)
No transactional value?
Nandan Nilekani feels the country can consider crypto currencies an asset amid rising popularity and lack of regulatory oversight. He believes crypto has stored value, just like gold or silver, but lacks transactional value.
"Just like you have some of your assets in gold or real estate, you can have some of your assets in crypto," he spoke to Financial Times in an interview. "I think there's a role for crypto as a stored value but certainly not in a transactional sense." ( Business Insider)