Bank of America names benefits of El Salvador's bitcoin strategy
Analysts at Bank of America (BofA), one of the largest financial institutions in the US, believe that El Salvador could gain a number of benefits from adopting bitcoin.
In a report, the bank's experts noted that the country's decision to recognise the cryptocurrency as a legal tender could potentially reduce the cost of remittances, which account for almost a quarter of El Salvador's GDP. This could have a positive impact on the disposable income of residents.
Analysts cited the democratisation of financial services as another benefit 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 by becoming a major cryptocurrency mining hub, similar to Iceland, BofA believes.
In June, El Salvador's Legislative Assembly passed a law recognising bitcoin as an official means of payment in the country. It will come into force on 7 September 2021.
IMF spokesman Gerry Rice said the initiative could entail a number of risks and regulatory challenges.
In July, the IMF warned of the consequences of bitcoin legalisation. The organisation believes that countries adopting digital assets as national currencies or legal tender risk macroeconomic stability.
The 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 the legalisation of cryptocurrency.
Recall that Steve Hanke, a professor of applied economics at Johns Hopkins University, opined that the introduction of bitcoin could completely destroy El Salvador's economy, as it would lead to an outflow of US dollars from the country, which is its official currency.