Bitcoin as legal tender: what does this mean for all of us? | Elena Obkhova
Author: FAS Founder and CEO Elena Obukhova | Fintech Consulting Services
We all heard the latest news Savior Become the first country to use Bitcoin as legal tender. What does this mean for the rest of the world?
To be honest, I am not surprised that the first country to do this is from Latin America. Countries in the region have been suffering from multiple crises and economic instability. People began to lose trust in the government and the central bank. For example, in 2001, Argentina froze all bank accounts and only allowed small withdrawals from accounts denominated in pesos. This is not the first case of such actions taken by the government. As early as 1982, Mexico banned U.S. dollar accounts and automatically converted funds into pesos, which caused 30% direct losses to currency exchange account holders.
Unfortunately, the list of such events in Latin American history is endless. The lack of trust in the public system triggered the rise of a cash economy there. Economically excluded citizens do not want to become inclusive because they do not trust banks at all. When you know that the government can freeze all your accounts when the crisis comes, you will feel that it is safer to put all your cash “under the pillow” at home.
You may ask, what exactly is the cash economy? It is a combined term used to describe all legal and illegal transactions and activities that use cash: remittances, loans, investments, savings, purchases of goods and services. People become part of the cash economy for many reasons. They may have good intentions, trying to protect savings from inflation or sending money to family members. They may also have other intentions, such as tax avoidance or even purchase of illegal goods and goods. The cash economy is different from the black market in that it is the result of an inefficient financial system.
Let us return to Latin America. With the substantial increase in taxation and inflation, unofficial and over-the-counter markets have begun to develop. Many people no longer want to pay taxes because fewer and fewer people have confidence in public services.
Recently, in order to fight the crisis, Argentina has restricted the exchange amount of the U.S. dollar against the U.S. dollar, setting the threshold at 200 U.S. dollars per month and imposing a 30% tax. If the U.S. dollar was the only way you could protect your household savings from rising inflation, what would you do? Here comes the answer-cryptocurrency.
The cash economy embraces cryptocurrency in Latin America because now anyone without a bank account can be financially included. Cryptocurrency allows people to store funds digitally, and because of the development of the Decentralized Finance (DeFi) industry, they can also earn the highest interest rates. Regardless of the country’s restrictions and restrictions, companies can make cross-border payments more easily. Remittances are now more accessible than ever. You don’t need to line up at the international cash remittance office that pays large commissions to send money to your family, and then exchange it into inflated local currency.
El Salvador was the first in this game, but definitely not the last. Bitcoin is a way to improve financial inclusion, especially when almost everyone has access to at least one mobile phone, even if there is only one in each household. Informa Telecoms & Media earlier claimed that the mobile penetration rate in Latin America has reached 100%. This is enough to enter the cryptocurrency market, but not enough to open a bank account.
Would you ask the rest of the world? In the past few years, when I was working in data science at the United Nations, I had the opportunity to process large amounts of data from Asia, especially Southeast Asia. For example, it is shocking to discover that many people in Myanmar do not have a national ID card! Without this document, you have no rights, let alone bank account qualifications. Regarding cryptocurrency, no matter if you have this piece of paper or not, everyone is equal. Statistics also show that people can use mobile connections, and it is easier to access than ATMs that are miles away from you.
At the same time, I also have the opportunity to explore the developing P2P market in Bangladesh. Microfinance, P2P lending and savings, all of which come from underserved markets. People are trying to make their lives easier. Many unique cash-based financial products appear in the cash economy of developing countries. The Nigerian isusu savings and loan program is an example of this. This model is based entirely on trust, but based on people rather than financial institutions. This is a way of collective savings and borrowing, and it has become a powerful tool not only for individuals but also for small businesses.
If we look closely, we will see many similarities between these traditional fiat currency-based products and insufficient services and DeFi market products. All of this is people-oriented and based on mutual trust.
Cryptocurrency is also built on trust and people’s beliefs. This is why every time a major crisis occurs, we see people migrating to cryptocurrencies. Venezuela is an example of this. The government has no choice but to be friendly to cryptocurrencies in the face of extreme inflation. Dash cryptocurrency built a very strong community there and produced its cryptocurrency, which was accepted in some shopping malls and parking lots, and now Dash is even used to test the wage system.
The recent Lebanese crisis is similar to the Venezuelan crisis. The difference between the official U.S. dollar exchange rate and the black market exchange rate has become 13 times. This is a huge difference, it drives everyone into the cash economy market, where everything is done with cash or cryptocurrency. The adoption of cryptocurrencies has started to increase dramatically and will continue to do so.
El Salvador is a starting point, a case study, where cryptocurrency transcends the cash economy and enters the public economy. If this proves to be successful, then we will see mass adoption next, especially in countries where Bitcoin is already the main bidder in the cash economy. Personally, it is very exciting to experience the upcoming changes in the world economy. In this change, everyone can be economically tolerant regardless of income, race, age, gender, and any other preferences. Sex.