Is the adoption of crypto as a national currency on the horizon?
The case for countries adopting their own digital currencies continues to grow as cryptocurrencies surges in popularity. While regulation and integration of alternative and digital currencies are at the top of the agenda for policymakers, some countries are already making the move – the first being El Salvador.
In 2021, El Salvador entered uncharted waters adopting Bitcoin as legal tender as the country’s second national currency. With remittance fees costing citizens over $400m each year and a significant portion of its population unbanked, the nation saw the adoption of digital currency as an opportunity to open up access to other financial services for the first time.
Jeremy Baber, CEO of Lanistar said, “El Salvador should be commended for taking such a significant leap into the future. As the interest and demand for cryptocurrency continues to grow in the next decade, Salvadorans will remain in a favourable position to benefit from their increased exposure to crypto.”
Already, countries around the globe are taking steps to explore the reality of adopting crypto as a national currency. According to a study from the US think tank the Atlantic Council, approximately 98% of the global economy is now exploring digital versions of their currencies, with almost half in advanced development, pilot or launch stages. This includes all G20 countries, excluding Argentina. Yet nations are treading carefully, fearing that cryptocurrencies make it easier for criminals to launder money and are environmentally damaging due to the amount of electricity they generate.
Baber added, “It is no secret that the crypto industry is sometimes the target of criminals, but if countries were to nationalise crypto, targeted regulation that is measured and proportionate would create a safer environment for those who wish to enter the space.
“While nationalisation is no easy task, countries like El Salvador are already leading the way. For example, there can be a risk of monetary policy losing its influence as central banks cannot set interest rates on foreign currencies, so for nationalisation to become a reality, governments must work closely with blockchain in finance and cryptocurrency developers to put their best foot forward.
“Central Bank Digital Currencies (CBDCs) can strengthen the usability, resilience, and efficiency of payment systems and increase financial inclusion if designed appropriately. Countries should also focus on addressing what is driving the sudden spur in the crypto domain, including citizens’ unmet digital payment needs, and seek to improve transparency, by recording crypto asset transactions in national statistics.”
In the case of crypto asset adoption, countries cannot import the credibility of the foreign monetary policy and bring their economy and interest rates in line with the foreign business cycle. Domestic prices of foreign goods and services could become unstable and fluctuate. Nevertheless, some developed nations such as Portugal actively support blockchain technology in public services, healthcare and supply chain management, following in El Salvador’s lead. This is attracting crypto enthusiasts thanks to the opportunity to use cryptocurrencies such as Bitcoin to pay for bills, taxes and luxury goods.
Baber concluded, “Now is the time to take a considerate approach to what the future of cryptocurrency looks like and to enable legitimate projects to flourish. After all, it’s important to remember that cryptocurrencies are just a decade old, while traditional currencies have evolved over hundreds of years. However, El Salvador’s adoption of crypto as a national currency is a significant step forward, and only time will tell when major players such as the US, China and the UK will take the first step themselves – and will no doubt be quickly followed by other nations.”