El Salvador, well isolated after the adoption of Bitcoin (BTC)
El Salvador is the first country to have made Bitcoin legal and inserted it into its economic system. The problem is, not all international institutions endorse this decision. The Economic Commission for Latin America and the Caribbean (ECLAC) has expressed concern over the choice made by Nayib Bukele and his family.
Right choice for El Salvador?
El Salvador’s decision to make BTC a legal tender would entail multiple risks, according to Alicia Bárcena, the Executive Secretary of ECLAC. She warns that the measure taken by the Salvadoran authorities will increase the risk of money laundering, as reported by the local news agency Diario El Mundo on Friday.
What worries the Executive Secretary and many others, including Salvadorans themselves, is that there has been no precedent yet of integrating BTC into a country’s economic system. As a result, she believes, nobody can fully predict possible advantages or risks associated with the decision made by El Salvador.
Furthermore, Alicia Bárcena pointed out that Bitcoin doesn’t yet fulfil the basic functions of a legal tender. Among other things, its volatility poses a huge problem, as it can increase the downside risks to the whole economic system of a country which chose to adopt BTC.
Other institutions express their concerns
ECLAC is neither the first nor the only institution to have expressed concerns about the decision to use Bitcoin as a legal currency in El Salvador. The International Monetary Fund (IMF) was one of the first to draw attention to the subject. The IMF warned that using BTC as a legal tender would pose legal and financial problems.
On 17th June, the World Bank denied El Salvador’s request to facilitate its BTC adoption. The Bank highlighted issues relating to the environmental impact and the “opacity” of the digital asset.
At the same time, Alexey Zabotkin, Governor of the Bank of Russia, explained that El Salvador’s adoption of Bitcoin isn’t that good an idea. He also pointed out that major economies are unlikely to follow suit, due to the risk of financial instability linked to BTC.
El Salvador appears to be isolated on the global stage. After the adoption of Bitcoin as a legal tender, the country is struggling to get its decision accepted by international institutions. They in turn believe that volatility of Bitcoin will be to blame for the possible collapse of the financial system of El Salvador.