Recently El Salvador President Nayib Bukele launched an initiative to make Bitcoin legal tender in that country. This has set the stage for debate and potentially making things worse for their financial system. The reasoning Bukele gives is that he thinks that doing this will alleviate El Salvador’s low banking penetration but is this the smartest move?
Bitcoin itself is a store of value, like gold is, it can and probably will increase in value as the demand grows but to have it as a form of true legal tender that is a different story all together. One of the main characteristics of a national currency is its stability, Bitcoin is volatile at best and if the mass adoption would happen as they are trying to do then it can and will strain the Bitcoin system to probably a trickle. Even if third party vendors come into play to offset the delays, you are still looking at a very volatile situation.
A better move would be for El Salvador to embrace a stable coin that can be used for swift and stable transactions, maybe leave Bitcoin as an investment vehicle to help the people over time but not as a main legal tender.