The financial institution believes that there are inconsistencies that El Salvador must overcome to advance the Bitcoin Law. The Central American country became a case study and model to legalize the cryptocurrency in other latitudes.
The Bank of Spain recently explained why the Bitcoin Law of El Salvador is risky to the economy. The institution warned that this policy could compromise the integrity of the financial sector of the Central American country.
Sergio Gorjón, from the Bank of Spain, wrote the analysis of the role of crypto assets as legal tender: the example of El Salvador. The director of financial innovations of that entity made a harsh criticism of the system, which he defines as a disruptive proposal surrounded by controversy.
Gorjón analyzed the management of El Salvador since it became the first country to adopt Bitcoin as legal tender. The economist stated that certain uncertainties about the project raise doubts over its evolution, besides the volatility of the cryptocurrency.
He commented that El Salvador is one of the countries with the lowest financial inclusion rates worldwide. The World Bank’s Global Findex stated that the population has poor education and little trust in institutions due to corruption. The analysis published by the Bank of Spain indicates that this calls into question the capacity of the State.
On the other hand, the Bitcoin Law requires the digitization of El Salvador to work. However, the document shows that only 50% of the population has access to the Internet while only 40% have a smartphone. Gorjón stressed that the government still needs to design public assistance programs to accelerate the process of migration to the virtual environment.
The Bank of Spain Believes that Other Countries Will Adopt Bitcoin as Legal Tender
According to Sergio Gorjón, other countries contemplated converting Bitcoin into legal tender before El Salvador did. However, the financial expert stressed that the latter is leading the initiative to apply it. For that reason, the world is scrutinizing the administration and the results of the implementation of the Law.
The economist argued that the initiative had raised expectations and skepticism alike. In addition, he stated that it serves as a reference for other countries that want to do the same. He argued that jurisdictions with weak currencies or those fully dollarized that wanted to become independent from the US currency would use it as a testing ground.
Gorjón highlighted that a positive factor of the Bitcoin Law is the regulatory effort to prevent the illicit use of Bitcoin. The illegal activities that he mentioned include money laundering and terrorism financing. However, the spokesperson for the Bank of Spain clarified that banks and their supervisors control it. He noted that those two agents raised numerous questions.
The Assembly of El Salvador approved the Bitcoin Law on June 9th. Since then, the initiative of President Nayib Bukele has not been without controversy. As if that were not enough, several international organizations have criticized it.
By Alexander Salazar