A new law in El Salvador regulates, for the first time, the cryptocurrency Bitcoin (BTC), with the purpose of formally integrating it into the country’s economy as legal tender. In addition to skepticism about this asset class, there is also suspicion about the government’s real intentions and the effects it may have on the country and the region. With movements like these in Latin America, Kimberly Rosales, an expert in the cryptographic space, explains the direction cryptocurrencies are taking in the region.
In the middle of last year, the president of El Salvador, Nayib Bukele, announced a new law to regulate the use of the BTC cryptocurrency. The initiative generated immediate criticism, nationally and internationally, from economists, the technical community, and political opponents, among other commentators.
But before the controversy allowed to settle a better path on the matter, the proposal had become a law of the Republic, approved by a legislative body particularly favorable to the Government. “The episode has given new impetus to the attempt to participate in the cryptocurrency market and regulate these assets in Latin America, not without a number of important concerns as the Salvadoran case demonstrates,” explains Rosales.
The approval of the Bitcoin Law in El Salvador takes place in a particular context. This country is going through an adverse economic moment, just like other countries affected by the pandemic. But also in a particular political context: the Legislative Assembly, dominated by the president’s party, has approved a large number of loans to the Salvadoran State, which have increased the country’s debt to historic levels.
On the other hand, the social context in which the Law was approved presents two faces. On the one hand, the still high popularity of the president. On the other, corruption accusations by the US State Department against one of his main officials and the decision to terminate the agreement with the Organization of American States that had created the Commission against Impunity in El Salvador. According to the recitals of the Bitcoin Law, it aims, among other things, to facilitate the financial inclusion of citizens, as well as to boost the country’s economic growth.
“The case of El Salvador has revived the mood for, at least, regulating these digital assets,” indicates Rosales. “Thus, in Paraguay, there is already a bill with the purpose of regulating the cryptocurrency market and the mining of cryptoassets, which is added to other initiatives of research, taxation, or regulation. Between skepticism and enthusiasm, important challenges remain for the region.”
Blockchain technology in general and cryptocurrencies, in particular, are often presented as the technology of the future for transactions of all kinds. However, their intrinsic characteristics present challenges, above all, in the face of the guarantee of legal certainty that states must ensure, particularly if they were to implement their use as legal tender.
Deregulation, decentralization, and the volatility of its value are elements that reduce legal certainty in the face of fraud or risks derived from sudden changes in value. As a result, there is a tendency to recognize the validity of cryptocurrency transactions only under state supervision, specific regulation, and strengthening of public institutions, or else to prohibit them. From an economic point of view, specialists point to the challenge posed by the traceability of cryptocurrency revenues in a country for the creation of public monetary policies.
Finally, three fundamental points for the adoption of blockchain technology, and particularly cryptocurrencies, are that we must learn from the lessons and challenges of the development, governance, and opening of the Internet.
Not to resort to technological solutionism, to motivate innovation, and to adopt and regulate technologies from an approach of respect for human rights.
“We must value the achievements made with the Internet, encourage inclusive discussion of the various sectors of society that contribute to providing clarity on the challenges and possible effects of the implementation of cryptocurrencies. Above all, we must consider the debt that Latin America still has regarding the gaps in access to digital technologies,” says Rosales. Adopting the latest digital asset fad is far from meeting these objectives.