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- Bitcoin’s legal tender will allow citizens to use it as a means of payment in El Salvador that USD as its currency
- BIS executives fear the volatile nature of cryptocurrencies could be detrimental for the financial system of any country that adopts it as a legal tender
- Security concerns, money laundering and illicit activities need to be kept in check to protect citizens from nasty situations
El Salvador’s president Nayib Bukele passed a law with a supermajority that made Bitcoin a legal tender in the country. In a first for the world, the country’s devalued currency and it’s fixed-peg against USD led to the adoption of Bitcoin as a legal tender. Citizens can now make and receive payments in Bitcoin.
However, the developments drew a flak from major financial authorities like the IMF and the Bank for International Settlements (BIS). The IMF reiterated that financial ramifications and the reconstruction of the legal system might be on its way.
Benoît Cœuré, head of the Innovation Hub at BIS, has stated that Bitcoin has failed the test to be considered as a legal tender. Moreover, the speculative trading activities call for stricter regulations to protect investor interests.
Risky cryptocurrencies vouch against existentialism
Cryptocurrencies pose serious risks as they are not backed by a certain regulatory authority and run on a public distributed ledger technology. Digital currencies have the potential to be stolen and used for money laundering purposes and financing terrorist activities.
A network of global computers with validators and nodes mint currencies after the completion of specific tasks assigned. The minting of cryptocurrencies is detrimental for the environment as it leads to the emission of harmful gases. The hub of mining cryptocurrencies, China, has placed a ban on trading and mining activities as its climate goals are hurt.
Fake schemes have led to millions being lost to unknown individuals or organisations. Cœuré further remarks that cryptocurrencies are the evil spawn of the 2008 financial crisis. The Bank is in favour of regulating the industry due to its speculative nature.
CBDCs to lead the way
BIS had quoted in March that centrally adopted digital currencies are going to pave the way ahead for the financial system as Bitcoin and other cryptocurrencies cannot be accepted as a payment instrument.
CBDCs will help the government or the central authority to participate in open market operations and regulate the demand and supply of the digital currencies. It will be able to keep track of the origin and destination of each currency distributed.
The Basel Committee for Banking Supervision stated that every fund should keep aside a dollar for every Bitcoin exposure held if cryptocurrencies need to move ahead. The risk parameters have been taken care of by the Committee and comes in as a breather for investors and stakeholders.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
