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The report of the Bank of America on El Salvador and Bitcoin

Photo of: Joseph Stone
by Joseph Stone

In a recent report, the Bank of America (BofA) highlighted some of the main advantages that El Salvador may have with the adoption of Bitcoin as legal tender. Among them, BofA highlighted the possibility of opening business channels with foreign companies, such as from the United States.

In addition, the bank stated that El Salvador will also benefit in aspects such as international remittances, financial digitalization, and greater options for consumers.

The report in question was shared by the Central American country’s president, Nayib Bukele on Twitter.

“The market has been overly pessimistic about this and is neglecting any argument in favor, even if these benefits are admittedly more uncertain,” wrote analysts, including Latin American strategist Claudio Irigoyen.

As far as international business is concerned, BofA noted that the U.S. is a hub for cryptocurrencies.

As such, the adoption of BTC in El Salvador may cause US companies to migrate to the country seeking a favorable environment for digital assets. As a result, the Central American country could receive more foreign investment.

“There could be [foreign direct investment] from Strike (payment platform developer), Bitcoin miners, ATM manufacturers, among other types of firms,” BofA said.

Specifically on digital currency mining, the bank detailed that geothermal energy from El Salvador’s volcanoes could attract the activity.

International remittances were also cited as a positive thing in Bitcoin adoption. According to Bank of America, as in other developing countries, remittance flows equal a substantial amount for El Salvador’s economy: 24% of GDP.

This is because there is a high incidence of remittances from Salvadorans abroad. The use of Bitcoin could therefore benefit the economy by reducing transaction costs in remittances into the country:

“Using Bitcoin for remittances can reduce transaction costs compared to traditional remittance channels. The idea is that Bitcoin can be used as an intermediary for international transfers,” BofA said.

Another positive implication is financial digitalization. As the bank pointed out, currently, more than 70 percent of adults in El Salvador do not have a bank account.

“Therefore, democratizing access to electronic payments, through Bitcoin, has a progressive ring to it,” BofA pointed out.

Finally, Bank of America claims that the adoption of BTC provides choices to the country’s consumers. The institution ponders that citizens will not be forced to use the cryptocurrency and businesses can likewise refuse to accept it if they do not have the necessary technology.

However, as expected, there was not all praise for Bitcoin. After all, BofA pointed out that there are several risks involved in the legal adoption of BTC in El Salvador.

Among other things, the banking institution pointed to Bitcoin’s volatility as a problem.

The bank said that allowing people to pay taxes in highly volatile Bitcoins is particularly worrisome. This is because it could lead to sharp drops in revenue if the price of the cryptocurrency falls.