Like many monetary institutions, Bank of America claims that there are more dangers than possible for El Salvador’s adoption of bitcoin as legal tender.
Still, the bank’s analysts said in a note last week that there may be a number of benefits, adding that it’s less difficult for migrants to send cash to El Salvador; digitize banking services; and building businesses with the United States.
“The market has been overly pessimistic about this and neglects any argument in its favor, those benefits are in fact more uncertain,” the analysts wrote, adding Latin American strategist Claudio Irigoyen.
Like many emerging countries, remittances are a really important amount for the Salvadoran economy, at 24% of GDP, because they leave the country and send cash home.
The use of bitcoin can gain advantages for the economy by reducing the transaction prices of remittances to the Central American country, BofA said.
The average transaction charge for cross-border bank remittances is over 10%, but can be much less expensive if Bitcoin is used. However, Bitcoin is very volatile and transaction fees can vary.
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Currently, more than 70% of Salvadoran adults don’t have a bank account, BofA said, but bitcoin is a form of virtual cash that can be easy to use, for example, cell phone apps.
“For this reason, the democratization of access to electronic payments, bitcoin, has a slow touch,” BofA analysts said.
Adoption can simply generate business with U. S. companies
The United States is a center of encryption, and El Salvador’s adoption of bitcoin can cause U. S. corporations to move into the country to take advantage of the replacement’s merit and make investments with them.
Bitcoin miners would possibly be attracted to geothermal energy from El Salvador’s volcanoes, for example, but overall electric power prices are high, making large-scale mining unlikely.
However, BofA claims that bitcoin adoption is negative
To be clear, Bank of America is still not in favor of El Salvador adopting bitcoin as legal tender, largely due to the enormous volatility of bitcoin, the world’s largest cryptocurrency known to hover 10% in a day and sink 50%. % in a matter of weeks.
Allowing other people to pay taxes on highly volatile bitcoins is a specific fear and can lead to a sharp drop in profits if the value falls, the bank said.