Nayib Bukele, President of the Central American country El Salvador, tweeted yesterday screenshots of an economic viewpoint report by the Bank of America (BofA). Along with detailing why the bank is constructive on the outlook for El Salvador’s economy, the report also outlined the opportunities Bitcoin adoption as legal tender might bring for the country.
BofA said it recognizes how cross-border remittance inflows, which account for a substantial 24% of El Salvador’s gross domestic product (GDP), could benefit from utilizing bitcoin. The Bank of International Settlements estimates that the average cost of such remittance is over 10%, which bitcoin could reduce.
“Using Bitcoin for remittances could potentially reduce transaction costs compared to traditional remittances channels,” BofA said. “If using Bitcoin indeed lowers transaction costs, then for every dollar that the Salvadoran diaspora send home, a greater portion of that dollar could be received by recipients, increasing their disposable income and reducing the proportion of remittances lost to financial intermediaries.”
Another positive outcome Bitcoin might have on Salvadorans, the report said, relates to banking the unbanked. Since more than 70% of the adult population of El Salvador does not have access to the traditional banking system, Bitcoin can democratize access to electronic payments –– a “progressive touch.”
Additionally, BofA said that by making Bitcoin legal tender in the country, El Salvador gives more choices to its people, including consumers and merchants, who may choose under which monetary standard they prefer to transact and save.
“Bitcoin’s adoption could also bring [foreign direct investment] flows into El Salvador,” the report said. “There could be FDI from Strike (developer of the payments platform), Bitcoin miners, ATM manufacturers, among other types of firms.”
Shortly after announcing his country would adopt Bitcoin as legal tender, Bukele invited bitcoin miners to take advantage of El Salvador’s abundant geothermal energy. The clean, emissions-free energy source is powered by the country’s volcanos. Then, Bukele said he was “starting to design a full Bitcoin mining hub around it.”
Another FDI vehicle that El Salvador has already been receiving is bitcoin ATMs. In June, Athena Bitcoin reportedly started installing 1,500 bitcoin ATMs in the country. The company said the installation process would happen in phases, the first of which would see 14 machines installed in the country.