El Salvador and Bitcoin

EL salvador has legalised the use of bitcoin for day-to-day transactions through a state-sponsored wallet. Initially there were some issues, but then the transactions have proceeded fine later. EL Salvador has adopted the US dollar in 2001 as currency. Bitcoin is the supplementary currency. It is an experiment. The problem is the high volatility. It makes it a high-risk investment rather than a store of value.

EL Salvador receives foreign remittances to the extent of 16 per cent of its GDP. Bitcoin is good for cross-border transactions as it operates on blockchain technology which cuts time and cost.

Cross-border transactions is a cogent argument for central bank digital currency (CBDC). Even India’s RBI is thinking about a CBDC.

Cryptocurrencies like Stablecoins are less volatile as they are pegged to the dominant currencies of the world. These have a bright future.

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