Many Central American Countries Wait For Bitcoin Implementation In El Salvador, Here's The Reason

Bitcoin will be the official currency in El Salvador. (photo credit: McKenzie/unsplash)

JAKARTA - Central American countries are patiently waiting to see if El Salvador's adoption of bitcoin as a parallel legal tender can cut costs of remittances, which are an important source of income for millions of people.

President Nayib Bukele's congressional ally has approved a law granting cryptocurrency official currency status alongside the US dollar, a world first. The measure took effect in September.

Bukele has touted the adoption of bitcoin as a way to facilitate remittance payments from Salvadorans living abroad.

"Everyone is paying attention to whether El Salvador is doing well and if, for example, the cost of remittances drops substantially then other countries will probably look to that advantage and adopt it," said Dante Mossi, executive president of the Central American Bank for Economic Integration (CABEI). , told Reuters.

Mossi called the plan an "out of this world experiment" aimed at increasing financial inclusion in a region where many people do not have access to bank accounts or credit cards. They depend on money sent home from relatives living in the United States.

CABEI, a regional development bank, provides technical assistance to El Salvador to implement cryptocurrencies. This is an important endorsement as the World Bank refuses to help, citing environmental and transparency weaknesses.

Mossi said the Central American countries that received the most remittances were the ones most likely to favor using bitcoin. He underlined that CABEI has a "fiduciary obligation" to support El Salvador in its request for assistance.

“Guatemala, Honduras and El Salvador are the countries that will benefit the most if bitcoin adoption lowers remittance fees,” Mossi said.

CABEI participated in the recent Central American Monetary Council meeting, part of the Central American Integration System (SICA), where participants asked about El Salvador's bitcoin plans and showed interest, he added.

The Central Bank of Honduras referred Reuters to a June 11 statement that said the bank does not prohibit, supervise or guarantee the use of cryptocurrencies as a payment method in the country. The governments of Guatemala and Honduras did not immediately respond to requests for comment.

Under 1% of the current global cross-border remittance volume is in crypto, according to Autonomous Research. However, in the future cryptocurrencies are expected to account for a larger share of the more than 500 billion US dollars for annual global remittances.

Bitcoin in theory offers a fast, inexpensive way to send money across borders without relying on traditional channels.

CABEI chief investment officer Carlos Sanchez said the bank's technical assistance was focused on helping El Salvador design a legal framework for bitcoin adoption and to ensure strict international money laundering protocols are adhered to.

"The aid was intended to help El Salvador navigate unexplored territory," Sanchez said.