The Republic of El Salvador is planning to replace the US dollar with bitcoin. In fact, the first step has already been done. In June, the country’s authorities adopted the law making BTC the official payment method. The law will come into force on September 7, 2021. Some economists consider such actions as a scandal whereas others think that it is the beginning of a new era.
If El Salvador manages to implement the plan, it will be the first country in the world that provided bitcoin with such a status. Importantly, other countries may also follow these steps. Some countries of Latin America have already hinted at the implementation of their own cryptocurrency strategy.
As a rule, pioneers always meet a lot of difficulties. El Salvador seems to be ready for the alleged attacks and roadblocks. Of course, the legalization of bitcoin has a lot of advantages. However, will that be enough to withstand such giants as the IMF?
The International Monetary Fund almost immediately reacted to the initiative announced by El Salvador. The organization supposes that countries, which accept digital assets as national currencies or legal tender, jeopardize their own macroeconomic stability. In other words, there is an opinion that the IMF is not satisfied with such an initiative and will hardly support El Salvador. The country may even lose the benefits provided by the fund. Latin Americans asked the IMF to allocate them $1 billion. Now, their intention to accept BTC may hamper the negotiations.
Legalization of the cryptocurrency was one of the reasons why Moody’s downgraded the Government of El Salvador's long-term foreign-currency issuer and senior unsecured ratings to Caa1 from B3. Notably, the outlook remains negative.
Earlier, Steve Hanke, a professor of applied economics at Johns Hopkins University, warned that the bitcoin strategy might destroy the economy of El Salvador. The country may face an outflow of the US dollar, which is the official currency of El Salvador.
