Is BTC Taking Hold in the Developing World? El Salvador, Paraguay & Beyond

Paraguay may soon become the second nation to accept BTC as legal tender. Is a trend forming?

For nearly a month, BTC has stayed fairly solidly between $30K and $40K, occasionally peeking through either side. Today’s $34K is certainly a welcome site for traders who may have feared that BTC was headed to sustained levels below $30K earlier this week. However, there have recently been several positive news points that may be driving the price of Bitcoin up.

El Salvador’s President, Nayib Bukele, said in a national address yesterday that bitcoin will officially become legal tender in the country on September 7th.

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In addition, the president announced that the government will be airdropping $30 in Bitcoin (BTC) to every adult citizen who downloads the government’s Bitcoin wallet app. However, Bukele noted that the use of BTC was optional and that salaries and pensions will continue to be paid in U.S. dollars.

El Salvador may not be the only nation to make BTC legal tender this year. A bill proposed in Paraguay this week would make Paraguay the second country to embrace Bitcoin as legal tender. In the wake of the bill, the American University of Paraguay announced that it will accept bitcoin tuition payments.

Carlitos Rejala, a member of Paraguay’s parliament, wrote about the bill on Twitter: “[…] Our country needs to advance hand in hand with the new generation. The moment has come, our moment. This week we start with an important project to innovate Paraguay in front of the world!”

Before the Bitcoin bill was proposed in Paraguay, Tanzanian President Suluhu Hassan told the nation’s financial chiefs to prepare for cryptocurrency: “We have witnessed the emergence of a new journey through the internet,” she declared. “I know that throughout the nation, including Tanzania, they have not accepted or started using these routes. However, my call to the Central Bank is that you should start working on that development.”

“The Central Bank should be ready for the changes and not be caught unprepared.”

While El Salvador, Paraguay and Others Are Bullish on BTC, China Has Another Idea

The effects of the entrance of developing countries into Bitcoin could have major effects on the price of BTC, although the most important metric could be the changes to BTC’s user count.

Cryptocurrency market analyst Willy Woo wrote on Twitter that even El Salvador’s $30 BTC airdrop could bump up BTC: “Assuming all 4.5m adults in El Salvador take up this offer, it’s roughly a 2.5% overnight boost to #bitcoin’s global user count.”

If Paraguay is added into the mix, that is another 7 million potential Bitcoin users.

Between El Salvador, Paraguay and Tanzania, one could argue that a trend may be forming, and a growing number of countries with developing economies are seeing Bitcoin as an opportunity for wealth.

However, on the other side of the globe, the picture is quite different. The government of China, which has one of the world’s largest developing economies, has taken steps to crack down on Bitcoin usage.

In May, the Chinese government announced that it would be banning working relationships between traditional financial institutions and cryptocurrency platforms. Then, this month, authorities in several regions of China tightened restrictions on Bitcoin miners.

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While these nations’ attitudes toward Bitcoin may not play a major role on the global stage, further national adoption of BTC could create some infrastructural challenges in international payment rails: all of these nations will need to find efficient ways of converting large amounts of BTC to cash, or more nations may need to consider accepting BTC payments for international trade–or both.

If Bitcoin Becomes Legal Tender, What Role Will It Play in International Trade?

The questions of what kind of role Bitcoin will play in international trade becomes even more complex when nationally-issued digital currencies are considered. China has been working on issuing a nationally-issued digital currency for several years; the United States is considering launching a ‘digital dollar’, and the European Union has been exploring a ‘digital euro’.

Therefore, one could imagine the formation of an international digital currency exchange system that could co-exist with or eventually overtake today’s foreign exchange rails. However, as journalist Jon Fingas pointed out in an article for Engadget, “Merely launching crypto payments also isn’t a guarantee of success.”

“Venezuela hasn’t gotten far with its Petro currency, although it was mainly intended as an end-run around international sanctions. It’s also tied to oil, which has had its own volatility thanks to the COVID-19 pandemic,” he explained.

Similarly, while national movements toward Bitcoin and nationally-issued coins could have big implications for the future of finance, it could be a long time before any of these movements are truly considered to be ‘successful’.

How Will Bitcoin Interact with Nationally-Issued Digital Currencies?

Further, what does success really mean for these national movements?

Finance Magnates previously reported on the concept of a “(crypto)currency war”: that nations who issue digital currencies may be willing to provide incentives for international players in the hopes of strengthening their currency.

However, the Chinese government stepped out in front of this theory in December of 2020, when Zhou Xiaochuan, the former Governor of the People’s Bank of China, said at the Shanghai Financial Forum that “If you are willing to use it, the yuan can be used for trade and investment…we don’t have an ambition to replace existing currencies.”

Additionally, Zhou specifically said that China’s national digital currency was not an effort to be like Facebook’s Libra, an international digital currency project that was initially launched as “a simple global currency and financial infrastructure that empowers billions of people.”

Indeed, when Facebook’s Libra project was announced in 2019, government officials the world over quickly spoke out against the project: specifically, they took issue with the notion that a private company could hold such large amounts of power over the global financial system. While Facebook denied that it would have a high level of control over Libra, the project was eventually re-designed as Libra 2.0, a scaled-down version of its predecessor.

Is Bitcoin Living Out the Libra Dream?

In a way, Libra may have represented the first time that the threat of a third-party currency, one that was not under the jurisdiction of any government entity, entered the international scene in a real way. Could Bitcoin pose a similar threat?

Indeed, if more developing nations decide to accept Bitcoin as legal tender, there is a possibility that international regulators could react in a similarly negative way that they reacted to Libra.

Even though BTC is not controlled by any centralized entity, a shift towards BTC could take power away from other countries with currencies that are used as legal tender outside of their home jurisdictions, for example, the United States. El Salvador’s reserve currency? The good ol’ USD. Therefore, in a bid to preserve the international power of the USD, it is possible that the United States could react negatively to a significant shift toward BTC in developing economies.

After all, there are some parallels between what Libra was trying to do as a centralized entity and what Bitcoin may actually be doing as an autonomous network. Interestingly, David Gerard, a renowned cryptocurrency researcher and critic, previously told Finance Magnates that Libra “was started by four Bitcoiners.”

“[Libra was] full of Bitcoin and blockchain ‘world ideas’,” including “all of the amazing promises that people make about cryptocurrency: it’ll solve inequality; you can do remittances with it and it’ll bank the unbanked, and all of that sort of thing,” David said, with more than a hint of sarcasm.

However, now that at least one developing nation has taken the leap towards BTC acceptance, perhaps we will get a chance to see if some of these ‘world ideas’ can become a reality.

What are your thoughts on this? Let us know in the comments below. 

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