After the government of El Salvador decided to adopt Bitcoin as legal tender in the country, there is great excitement among neighbouring states as to how and if this first experiment will work. Other countries like Honduras and Guatemala are studying Bitcoin and cryptocurrencies.
A pilot test for a new South American digital currency is under consideration
The president of the central bank of Honduras, Wilfredo Cerrato, said in recent days that the possibility of adopting digital currencies in the country’s economy is being explored, although for now only through the eventual adoption of a Central Bank Digital Currency.
The President, speaking at a regional economic forum in Tegucigalpa in late August, made it clear that a pilot test project is being studied for issuing its own local digital currency or creating a CDBC.
Meanwhile, Guatemala’s central bank vice-president Jose Alfredo Blanco said that the bank is considering introducing a local digital currency in the country, to be called iQuetzal.
According to experts, the central banks of Central American countries, are interested in seeing how it will work in El Salvador, especially from the point of view of cutting the cost of money transfers, which are a big problem especially for the remittances of the many residents abroad.
In 2020, Hondurans living abroad – mainly the United States – sent $5.7 billion, about 20% of the country’s gross domestic product (GDP), in remittances. President Nayib Bukele of El Salvador said the adoption of bitcoin will save 400 million annually in fees related to remittances from abroad.
Honduras opens first bitcoin ATM in late August
The first cryptocurrency ATM opened in Honduras last week.
The device, nicknamed locally “la bitcoinera”, allows users to acquire bitcoin and Ether using local currency, and was installed in an office tower in the capital of Tegucigalpa by Honduran company TGU Consulting Group.
This is to meet the increasing demand for cryptocurrencies from the local population.
This sort of experiment shows how in the country, as well as in neighbouring Guatemala, Costa Rica and Panama (where there are already around 20 crypto ATMs) but also in some Latin countries such as Venezuela, Colombia and Argentina the use of cryptocurrencies is gaining ground among the local population.
According to the recent Global Crypto Adoption Index of 2021, which measures individual countries’ adoption of cryptocurrencies and is led by Vietnam, Venezuela ranks seventh while Argentina and Colombia occupy the tenth and eleventh positions in the ranking respectively.
Economically underdeveloped countries benefit most from the adoption of digital currencies
So far, it is mainly underdeveloped or economically challenged countries that have been increasingly interested in the new digital currencies.
The explanation lies in the fact that cryptocurrencies can combat the problems of high inflation, or solve the problems of banking costs and difficulties in opening a bank account.
Digital currencies are also used to circumvent harsh international embargoes imposed on some states considered illiberal, such as Cuba, North Korea or Iran.
But the advantages of adopting a digital currency are also those related to its disintermediation and non-dependence on the monetary policies of central banks. This is why even in many sub-Saharan African states, which still have to abide by the strict rules of the Cfa franc, controlled by the Bank of France, the adoption of cryptocurrencies has increased exponentially in recent years.
Many analysts think that one of these countries may soon launch an experiment like the one approved in El Salvador.
Ghana, Nigeria and Kenya (Kenya and Nigeria are respectively in 5th and 6th place in the Global Crypto Adoption ranking) are among the countries most likely to be the first African countries to adopt a digital currency as legal tender.
The devaluation of local currencies (the Kenyan shilling has lost 6.3% against the dollar since the beginning of the year) is certainly one of the factors that could push local governments to adopt cryptocurrencies as legal tender soon.