Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!
SHARE:
EL SALVADOR & BITCOIN
Read more on - Polity | Economy | Schemes | S&T | Environment
- First nation to adopt Bitcoin: On June 9, 2021, El Salvador became the first sovereign nation to make a cryptocurrency legal tender. Credit goes to the law pushed by its 39-year-old President, Nayib Bukele, which passed with 62 out of 84 votes. From now on, Bitcoin should be accepted as a valid payment by all establishments, except those with technical limitations. The country’s primary currency is the United States dollar, and Bitcoin is now at par with the USD.
- Fully dollarized so far: El Salvador fully ‘dollarised’ its economy in 2001. Countries adopt the U.S. dollar as their official currency usually when their local currencies fail (for example, Zimbabwe, which saw inflation in multimillion percentages), or to take advantage of the stability that it offers and attract investments. But these ‘dollarised’ countries get linked to the monetary policies of the Federal Reserve in USA. The U.S. central bank could set rates that may benefit the U.S. economy but end up hurting economies that use the same currency. Losing control over one’s monetary policy is not a good idea.
- No more trust in Central Banks: In a direct attack on Central Banks (especially US Fed), the Bill that Mr. Bukele proposed said that “Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador” and that Bitcoin was being adopted “in order to mitigate the negative impact from central banks”. The country’s economy is also heavily reliant on remittances from El Salvadoreans working abroad. According to World Bank data, remittances made up almost $6 billion in 2019, which was about 20% of the country’s GDP — one of the highest ratios in the world. By enabling the transfer of money via Bitcoins, Mr. Bukele says El Salvadoreans will save on transaction fees of banks and agencies.
- Biden versus Bukele: Politically, the current government in El Salvador and the Joe Biden administration in the United States are at odds. Some of President Bukele’s right-hand men found mention in a U.S. State Department list of corrupt officials in central America. The United States’s international aid agency is also moving money away from the Bukele government after it voted to remove all members of the Supreme Court.
- How it works: Bitcoin is the first and biggest of decentralised cryptocurrencies, which are online payment systems that have grown big in recent years. Of the thousands that emerged, Etherium, Tether, and Binance Coin are some that became quite big. Cryptocurrencies are built on the back of blockchain technology, a system of distributed, cryptographically-secured account keeping. In this system, the users keep a tab on every digital ‘coin’ and transaction rather than a banking system with a governing body at its centre. So there’s no central control, and everyone is in control.
- Governments hate cryptos: Due to their core nature that shuns centralised control, governments globally have been wary of cryptocurrencies. Some have tried to use the technology to create government-sanctioned digital currencies. China, a hub of cryptocurrency activity, has issued a digital Yuan on blockchain while it cracks down on other cryptocurrencies. The Bank of England has also proposed a digital Sterling. India has remained ambivalent for long.
- Still, not a total ban: However, many countries, including India, have allowed the treatment of cryptocurrencies as commodities, resulting in a rising tide of investment in them. After its introduction in 2009, Bitcoin saw its biggest gain in value last year, having started 2020 at $7,200 per coin and touching $65,000 in April of 2021, before falling to $30,000 in May. The RBI ban on mainstream finance firms dealing with crypto exchanges brought things to a halt in 2018, an order the SC overturned later in 2020.
- Volatile asset class: Cryptocurrencies are highly volatile, as the massive swings in the values of Bitcoin and Dogecoin, based merely on the tweets of cryptocurrency ‘evangelist’ Elon Musk, proved.
- Energy consumption: The huge energy use associated with cryptocurrencies due to ‘mining’ process of Bitcoin, where individuals or companies set up powerful systems to support the blockchain network, for which they are rewarded in the currency, consumes “about the same amount of energy annually as the Netherlands did in 2019. Bitcoin production is estimated to generate between 22 and 22.9 million metric tonnes of carbon dioxide emissions a year, or between the levels produced by Jordan and Sri Lanka. That creates an ethical dilemma for the crypto king, Bitcoin.
- Summary: According to Mr. Bukele, the government will protect citizens from the volatility of Bitcoin prices by guaranteeing quick convertibility to dollars. If a shopkeeper does not want to hold the Bitcoin which they now have to accept from customers, the government will purchase it through a $150-million trust created at the country’s development bank. As for the carbon footprint, Mr. Bukele says he has asked the State-owned geothermal electric company, LaGeo, to connect renewable energy from the country’s volcanoes to bitcoin mining facilities.
* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your own subscriptions. Copyrights acknowledged.
COMMENTS