El Salvador has a new law that regulates the cryptocurrency Bitcoin (BTC) for the first time. It aims to integrate it into the country’s economy and make it legal tender. There is suspicion about the government’s intentions and potential effects on the country and region, as well as skepticism regarding this asset class. Angelo Babb is an expert in digital currencies, and explains how cryptocurrencies are moving in Latin America.
The president of El Salvador, Nayib Bukele, announced in the middle of 2021 a new law that would regulate the use and transfer of BTC. This initiative was immediately criticized by economists, technical experts, political opponents, and other commentators, both nationally and internationally.
The controversy did not allow for a solution to be found. However, the proposal was made into a law of Republic and approved by a legislative body that is favorable to the Government. Babb explains, “That episode has given new impetus for embracing the cryptocurrency market, as well as regulating these assets in Latin America, but not without a few important concerns, as the Salvadoran case shows.”
In a specific context, the approval of El Salvador’s Bitcoin Law is made. The country is in an economic crisis, similar to other countries that have been affected by the pandemic. However, the political context is also important. The Legislative Assembly, controlled by the president, approved large amounts of loans to the Salvadoran State. This has increased the country’s debt levels to historical highs.
The social context in which Law was approved has two sides. The president’s popularity is still high. The US State Department made corruption allegations against one of his top officials. They also decided to end the agreement with the Organization of American States, which had established the Commission against Impunity in El Salvador. Its main purpose is, according to the Bitcoin Law, to promote economic growth and financial inclusion.
Babb says that the case of El Salvador “has revived the mood to regulate these digital assets.” There is a bill in Paraguay that regulates the cryptocurrency market and the mining of cryptoassets. This bill is added to the other initiatives of taxation, research, or regulation. There are important challenges for the region, both in terms of skepticism as well as enthusiasm.
The future technology for all transactions is blockchain technology and cryptocurrencies in particular. Their inherent characteristics pose challenges, especially in light of the need for legal certainty, which states must provide, especially if they are to use them as legal tender.
Legal certainty is reduced when there are fraud and sudden fluctuations in its value. Deregulation, centralization, as well as volatility, of cryptocurrency’s value, are elements. It is common to recognize cryptocurrency transactions as valid only under the supervision of the state through specific regulation and strengthening of public institutions. Specialists point out the economic challenge presented by the traceability and transparency of cryptocurrency revenue in a country to create public monetary policy.
Three fundamental principles for the adoption of blockchain technology and cryptocurrencies are that we must learn from the challenges and lessons of the development, we must have governance and we must open up the Internet. Furthermore, to not resort to technological solutionism to encourage innovation and to adopt and manage technologies with respect for human rights.
Babb concludes, “We need to value the accomplishments made with the internet and encourage inclusive discussion about the different sectors of society that help to provide clarity on the possible challenges and effects of the implementation cryptocurrencies.”
And, most importantly, we need to consider the debt that Latin America still owes in relation to the lack of access to digital technology. These objectives are not met by adopting the latest digital asset trend.