Status: 04/29/2022 3:40 p.m.
El Salvador was the first, now the Central African Republic and Panama will follow: cryptocurrencies will be legal tender. What are their goals ?
Currently, it seems that cryptocurrencies are not only establishing themselves as an object of investment for investors, but also increasingly as a means of carrying out day-to-day transactions. Panama would like to become the second country in Latin America to allow Bitcoin and other cryptocurrencies as a normal means of payment in the future.
Last Wednesday, the Central African Republic became the second country in the world to announce that it would allow Bitcoin as legal tender. And in early September, El Salvador became the first country to officially accept bitcoin as legal tender. Any merchant who is technically able to do so must therefore accept cryptocurrency, and taxes can also be paid in Bitcoin there and in Panama. The US dollar is the national currency of both countries.
Many positive effects
A trend can be seen between countries adopting or planning to adopt cryptocurrencies, says Philipp Sandner, head of the Blockchain Center at the Frankfurt School of Finance & Management. tagesschau.de. According to the expert, it is especially the countries in which the institutions do not work well or do not work well, which are based on Bitcoin. Bitcoin is a sort of substitute institution when a state has not been able to establish good stable institutions such as exist in Germany, for example.
There are many aspects that could also be useful in everyday life. According to Benedikt Faupel, blockchain expert at the digital association Bitkom, countries that are currently introducing cryptocurrencies as a means of payment generally expect three advantages: “On the one hand, greater independence from the dollar American, and on the other hand faster transfers from abroad, which are associated with lower transaction costs, because a lot of money from abroad, for example family members, is currently flowing into those countries.
Third, the significant proportion of the population that does not have a bank account can use a smartphone app to store values digitally and also pay with them,” Faupel said. tagesschau.de.
Sandner also points to the positive effects of cryptocurrencies, which have also manifested themselves in recent weeks. Refugees used them during the Ukrainian war to transport valuables across borders. Additionally, due to their scarcity, crypto-assets could serve to mitigate the risk of losing purchasing power in times of inflation.
Pretend to argue?
However, the measures taken by Panama and El Salvador are also met with skepticism: critics fear that money laundering will be facilitated. Experts say Panama’s reputation as a country lacking in financial transparency could be bolstered. For example, the International Monetary Fund (IMF) had asked El Salvador to abolish Bitcoin as legal tender. The risks are enormous, “significant risks to financial stability, financial integrity and consumer protection” loom, the IMF board said.
At the very least, the question arises whether serving the people is really the priority for Panama and El Salvador. Experiences in El Salvador show that people don’t like bitcoin very much and it’s not widely used there, said Stefan Hofrichter, head of global economics and strategy at Allianz Global Investors (AGI). tagesschau.de. There were even protests there because of Bitcoin.
“Countries are not primarily concerned with ordinary citizens being able to use Bitcoin for their daily payment transactions, nor with savings when sending international transfers from migrants, as is often said,” emphasizes Christian Ambrosius, economist and expert on Latin America at the FU. Berlin, opposite tagesschau.de. According to him, these are arguments put forward.
Discretion for capital holders
So why the intro? “The economic model of countries like Panama is based on being an attractive target for globally mobile capital, whether to avoid taxes or to launder money,” notes Ambrosius, specialist. of Latin America. By accepting Bitcoin as a means of payment, these countries wanted to offer attractive conditions to holders of capital who also hold Bitcoin in their portfolio and seek discretion, underlines the expert.
“At a time when traditional financial market regulation has become more stringent, Bitcoin offers an important niche,” Ambrosius continues. Countries like Panama and El Salvador in particular, where the dollar is also a legal means of payment, could play an attractive role. location advantage here.
“Not suitable as a means of payment”
Apart from that, given the massive price fluctuations, the practical question arises whether cryptocurrencies are even suitable as a means of payment. “Due to the high volatility, so-called cryptocurrencies are neither suitable as a means of payment nor as a store of value, rather they are an object of speculation,” says AGI Chief Economist Hofrichter.
Over the past twelve months alone, the price of Bitcoin has fluctuated between around $30,000 and almost $70,000, and currently sits around $40,000. Economist Hofrichter does not consider Bitcoin & Co. a “currency” anyway, because they do not or only insufficiently meet three requirements – means of payment, unit of account, store of value. In addition, according to Hofrichter, it is questionable how secure processing using cryptocurrencies really is.
Will there be any regulations?
Does the introduction nevertheless mean that cryptocurrencies will take hold on a global scale? The process began a long time ago, says Sandner. But it could take years or decades. However, the expert points out that Bitcoin & Co. will not prevail in the EU or the United States as a currency, but as an object of investment.
Crypto-currencies are also already established internationally for blockchain expert Faupel: “Bitcoin and other cryptocurrencies may become even more relevant when used as a means of payment.“
But what about the warning from IMF experts? Ambrosius suspects that sooner or later pressure will increase on countries like Panama or El Salvador to introduce transparency criteria for Bitcoin, so that payment flows in digital currencies can be tracked. “However, it has of course always been true that attempts at regulation have always followed new financial products and financial innovations.“
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