Bitcoin is not a new name for most nations by now. Owing to the popularity of Bitcoin, cryptocurrencies have also become quite popular and many countries were now moving to either regulate it or just place an outright ban. Then there was El Salvador that was embracing Bitcoin to a whole new level by declaring it a legal tender.
While Salvadorans were happy about the decision, Bank of Spain was not impressed by its decision and issued a report scrutinizing it.
The report titled “EL PAPEL DE LOS CRIPTOACTIVOS COMO MONEDA DE CURSO LEGAL: EL EJEMPLO DE EL SALVADOR” [The role of crypto assets as legal tender: the example of El Salvador] was authored by Sergio Gorjón. He is a representative of the Central Bank of Spain from the General Directorate of Operations, Markets and Payment Systems.
In his report, Gorjón elaborated on one of the major problems with El Salvador making Bitcoin legal tender, which was the opacity of the project. He stated,
“The opacity and lack of consensus with which the project has been carried out has been another limiting factor. Thus, the main global rating agencies agreed to carry out a downward revision of El Salvador’s sovereign credit rating.”
El Salvador’s transition to adopting Bitcoin took place earlier in September and was faced with some glitches. The government digital wallet responsible for facilitating transactions went temporarily offline, which sent the value of Bitcoin tumbling.
Although the government offered $30 worth of Bitcoin to its citizens and businesses like McDonald’s were now accepting Bitcoin payments, the country lacked a functioning infrastructure.
International financial regulators like the International Monetary Fund and the World Bank had already warned about economic risks associated with Bitcoin volatility to the country. Another risk that the Bank of Spain highlighted in its report, was in line with one of the concerns expressed by Ethereum founder, Vitalik Buterin.
The lack of crypto education has been one of the major reasons for people to get duped in the market or fall prey to Ponzi schemes. Buterin had noted that forcing Bitcoin on such an untrained, non-crypto savvy population was risky and the Bank of Spain added to it noting,
“With just over 50% of its population with Internet access and a market share of smartphones that barely reaches 40%, El Salvador is at the bottom of the Central American countries in terms of the level of digital training.”
Although the concerns marked by the Central bank were real and not new, its role in publicly calling out El Salvador is unfounded. Spain has been seeing a wave of crypto adoption, as PortAventura World, an amusement park became the first in its field to add Bitcoin payments as an option to its clients.
Being one of the largest entertainment resorts in Europe, located in Spain, there were other businesses too open to take Bitcoin payments. The concerns of the Bank of Spain will be relevant when it takes a call on regulating Bitcoin and other cryptos. Meanwhile, El Salvador moved ahead with integrating Bitcoin by utilizing profits on a pet hospital.