Bank of America outlines potential benefits of El Salvador's Bitcoin (BTC) strategy
Analysts at Bank of America (BofA), one of the largest financial institutions in the US, believe El Salvador may benefit from several advantages of Bitcoin adoption.
El Salvador has BofA’s support on Bitcoin adoption law
In the report, experts from the bank noted that the country’s decision to legalise the cryptocurrency could potentially reduce the cost of remittances, which amount to almost a quarter of El Salvador’s GDP. This is likely to have a positive impact on residents’ disposable income.
Analysts cited the democratisation of financial services as another advantage of Bitcoin adoption, as around 70% of the country’s adult population does not have a bank account.
El Salvador could also attract foreign direct investment flows by turning into a major cryptocurrency mining hub, as Iceland did, BofA experts believe.
In June, El Salvador’s Legislative Assembly passed a law to recognise Bitcoin as an official means of payment in the country. It will enter into force on 7th September 2021.
El Salvador’s fragile economy might end up in shambles
IMF spokesperson Gerry Rice said the initiative could entail a number of risks and regulatory problems.
In July, the IMF warned of the consequences of Bitcoin legalisation. The organisation believes that the countries that adopt digital assets as national currencies or legal tender will risk macroeconomic stability.
International rating agency Moody’s has downgraded El Salvador’s long-term foreign currency credit rating to investment grade Caa1 with a negative outlook. One of the reasons for this was its move to legalise Bitcoin.
Earlier, a Johns Hopkins University professor of applied economics Steve Hanke opined that the Bitcoin adoption could completely wreck El Salvador’s economy by causing an outflow of US dollars from the country, which is also its official currency.
The BofA report, published on 26th July, discusses El Salvador’s overall economic horizons, as well as the opportunities for improving remittance, digitisation, and business operations efficiency. The American bank has positively evaluated Nayib Bukele’s initiative, citing a number of potential benefits for the country.
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