Bank of America, one of the nation's largest financial institutions based on total assets, believes El Salvador could have a lot to gain with its latest foray into Bitcoin (BTC).
Analysts at the bank published a report last week stating that El Salvador's decision not to recognize Bitcoin as legal tender could help streamline remittances and promote financial digitization. They also believe it will give consumers more choice and open the country up to American companies and digital currency miners.
The bank pointed out that while remittances make up a remarkable 24% of El Salvador’s gross domestic product (GDP), a substantial portion of this goes towards transaction fees.
"Using Bitcoin for remittances could potentially reduce transaction costs compared to traditional remittance channels," the report said, according to an image provided by state-backed Diario El Salvador. The idea is to use Bitcoin as an intermediary to cross-border transfers. This means that dollars can be converted into Bitcoin by the sender, and then domestically converted by the receiver to dollars.
El Salvador became the first country-state to accept Bitcoin legal tender in June 2015. This was a significant milestone in the evolution of the digital currency from obscure to mainstream acceptance. International Monetary Fund and United Nations Economic Commission for Latin America & the Caribbean have criticized the decision to integrate Bitcoin into the country’s financial system. Meanwhile, JPMorgan Chase believes El Salvador's Bitcoin gambit could place additional pressure on the network's already limited ability to serve as a medium of exchange.
Survey data shows half of Salvadorians are skeptical about using BTC as legal tender. Those who choose to adopt BTC for transactions can use the state-backed Chivo Bitcoin wallet, among many other options available to them.
Since El Salvador recognized Bitcoin as legal tender, several other Latin American nations have hinted at pursuing a cryptocurrency strategy of their own. However, El Salvador is the only country that has not followed their lead.