Securities Times Comment: How many countries in the world are likely to legalize Bitcoin?

Author: Zhang Rui

Perhaps more countries besides El Salvador will upgrade Bitcoin to legal tender, which may involve elements of financial gaming.

The Bitcoin Law, passed by the El Salvador Congress with a high vote, officially came into effect on September 7, making El Salvador the first sovereign country in the world to allow Bitcoin to circulate as legal tender. Against the backdrop of major economies around the world showing vigilance and high pressure on virtual currencies such as Bitcoin, El Salvador has embraced Bitcoin with open arms, and there is undoubtedly an objective logic behind this that attracts attention.

El Salvador is an economy dominated by cash transactions. About 70% of the people do not have bank accounts or credit cards and cannot enjoy banking services. However, the mobile phone penetration rate in El Salvador is as high as 146%, with each person holding about 1.46 mobile phones. Therefore, if they can learn to use Bitcoin peer-to-peer transfer transactions through mobile terminals, it can make up for the shortcomings of being unable to reach bank retail services and greatly improve the inclusiveness of finance. On the other hand, El Salvador is mainly agricultural, with a weak industrial base and lackluster exports. The economy is heavily dependent on remittances from immigrants. Every year, more than 2 million Salvadorans remit more than 6 billion US dollars in remittances to the country, accounting for more than 20% of El Salvador's GDP. For these international transfers, existing services not only charge 10% or more, but also have slow transmission speeds. But if you switch to Bitcoin, you can experience fast and convenient services and save high intermediary fees. According to calculations by Salvadoran President Bukele, using Bitcoin can save Salvadorans $400 million in transaction fees each year.

In order to promote the use of Bitcoin and its transactions, the Salvadoran government has done its best. On the one hand, the country has clearly stipulated that it will not impose capital gains tax on Bitcoin transactions. At the same time, it has decided to establish and operate a trust fund holding $150 million in Bitcoin through the El Salvador Development Bank to offset Bitcoin fluctuations and ensure that merchants do not take unnecessary risks. In addition, El Salvador has also announced that it is possible to become a citizen of El Salvador with 3 Bitcoins. In addition, as a necessary financial infrastructure for the operation of Bitcoin transactions, the Salvadoran government has installed 200 Bitcoin ATMs with Chivo digital wallet functions throughout the country. The wallet is pre-loaded with $30 worth of currency for users who register with the Salvadoran national ID number. At the same time, the device allows the exchange of cryptocurrencies into US dollars and withdrawal without commissions.

Of course, El Salvador also gives people enough freedom to choose and use Bitcoin. More than 90% of transactions in El Salvador are in US dollars. Although it has its own legal currency, the colon, it has been dormant. Therefore, after Bitcoin becomes legal currency, it can be freely exchanged with the US dollar, and the exchange rate is freely determined by the market. Not only that, people can use Bitcoin to pay fees and taxes, but also to purchase, pay and repay debts. All organizations and individuals may not refuse any consumer's Bitcoin transactions. Given that Bitcoin transactions are more complicated than cash, El Salvador allows people who cannot trade in Bitcoin to not accept Bitcoin payments, and merchants who are technically unable to accept electronic currency are not subject to legal constraints.

El Salvador's move to legalize Bitcoin has undoubtedly attracted global attention. A spokesperson for the International Monetary Fund (IMF) warned that El Salvador's decision to adopt Bitcoin as legal tender may bring a series of risks and regulatory challenges. However, while the IMF issued a bearish statement, there were also many followers of El Salvador's approach. Since the passage of El Salvador's Bitcoin Law, some Central and South American countries have come forward to make their official attitudes towards Bitcoin. Among them, Cuba has begun to legalize the cryptocurrency already used on the island, and legislators in Panama and Uruguay have also proposed similar legislation.

A little analysis shows that the countries in El Salvador's "circle of friends" basically have the following commonalities: on the one hand, these countries have small economies, weak endogenous momentum for economic growth, and strong dependence on external markets, especially European and American markets; in particular, many countries do not have their own independent currencies or their own legal currencies are less stable and popular, so they have to choose the US dollar as their legal currency, but closely related to this, these countries have also lost the independence of monetary policy, and the government's ability to regulate the economy has been significantly marginalized. Although choosing Bitcoin as legal currency like El Salvador is not for "de-dollarization", if the application of digital currency can enhance the independence of the country's economy, it is also a result they are willing to see. On the other hand, economies such as El Salvador do not have as strong financial technology as China and European and American countries, and can only rely on the power of private virtual currency to complete the layout of legal digital currency. Even in the context of Bitcoin being "blocked" by many major countries, many weak countries still want to take the opportunity to "pick up goods" to quickly obtain their own scarce external financial resources. In this sense, there may be more countries besides El Salvador that upgrade Bitcoin to legal currency, which may contain elements of financial gaming.

(The author is a professor of economics)