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In a recent interview, Alex Heptner, CEO of the Bitmex crypto exchange, voiced an interesting and even bold prediction: according to the businessman, several states are able to officially recognize the leading digital currency as a legal means of payment.
Moreover, Heptner believes that a fateful event will occur as early as next year in 5-6 developing countries. True, the names of the followers of El Salvador CEO Bitmex did not announce. Let’s try to make our own rating of states that are ready to bet on bitcoin.
Three Drivers of Legalization
Heptner supports his opinion by listing trends that can really speed up the process of legalizing virtual assets:
- Money transfers. According to the World Bank, 3/4 of all remittances in the world last year were to middle- and lower-middle-income countries. The size of the market is impressive: in total we are talking about more than $ 540 billion. Today, operators of this industry – giants like Western Union – charge huge commissions for transactions (about 10% on average). The use of cryptocurrencies can significantly reduce transaction costs (for example, in El Salvador, 23% of GDP is provided by remittances from labor migrants who have settled abroad). This would return tens of millions of dollars to the national economy. And the process has already been launched, as El Salvador became the first country to recognize cryptocurrency settlements as absolutely legal on its territory.
- Inflation. IMF analysts believe that this important indicator in 2021 will average 5.5% for developing countries. However, each state has its own level. So, in Turkey it is now approaching 20%. It can be said that during the year the savings of citizens in the national currency lost 1/5 of their value. And cryptocurrencies like bitcoin have a deflationary model. In the long run, it only implies an increase in their value.
- Politics. Many powers that be will try to use cryptocurrencies as a trump card in political games. Positioning themselves as supporters of the “new money”, they will try to win over the youngest and most progressive part of society. However, any mistake or untimely steps in this direction can significantly harm the adoption of cryptocurrencies in the whole world. Therefore, it is worth acting very carefully here.
Which countries are closest to legalizing bitcoin as a means of payment? And on what does the probability of this event depend: on the desire of the voters or on the political will of the ruling elite?
In early September of this year, a national draft law on cryptocurrencies was presented to the country’s parliament. True, unlike El Salvador, where you can legally pay for goods and services only with bitcoin, in this state they also want to make ether (ETH) legal tender.
The legalization of payments in cryptocurrency, according to the authors of the bill, will not only simplify and reduce the cost of cross-border payment systems, but will also stimulate the integration of blockchain technologies into the public and financial sectors.
It is noteworthy that the bill does not oblige suppliers of goods and services to accept payment in cryptocurrency. This controversial norm caused a flurry of criticism and was subsequently excluded from the document. A phased voluntary transition to accepting such payments is planned – only after the business evaluates all their advantages in comparison with traditional payment methods. In other words, the principle is simple – without haste and step by step.
Back in May, Cuban President Miguel Diaz-Canel raised the issue of legalizing cryptocurrencies in order to help the country’s economy hit by the pandemic. On September 15, the Central Bank of the country allowed settlements in cryptocurrency for commercial transactions, in fact legalizing them in business.
But at the same time, the regulator tirelessly warns of the risk of such transactions and their potential threat to monetary policy, financial stability and transaction transparency.
The Sympathy Club Grows and Expands
The most notable practical interest in the path of El Salvador is shown by Latin American countries. Judging by media reports, they are potentially ready to make appropriate changes to national legislation – but only after studying the experience of colleagues. This was stated by politicians of various calibers in Brazil, Mexico, Argentina, Paraguay.
It is curious that all the listed states are far from the first places in the Global Cryptocurrency Adoption Ranking. In 2020, the leadership in it was won by …Ukraine and Russia.
True, this year the Ukrainians and Russians dropped to 4th and 18th places, respectively. Neither in Kiev, nor in Moscow, no one is yet talking about the plans of states for the full legalization of cryptocurrencies.
The Kremlin recognizes the potential of bitcoin, but believes that it is “too early” to use digital assets in calculations.
In Ukraine, too, not everything is going smoothly, despite the bravura reports of local media. The Law “On Virtual Assets” indeed passed the first and second readings, but it would be premature to talk about real breakthroughs. And that’s why:
- the president vetoed the law and sent it back for revision;
- the document, in fact, looks like a banal declaration of intent, and not a real “road map” for the legalization of cryptocurrency in the country. At least, Kiev is clearly in no hurry to recognize bitcoin as a means of payment.
Latin America ahead of us?
The countries of Eastern Europe account for a solid part of the global pie of cryptocurrency transactions – $422 billion a year, but most of the payments are directed abroad, i.e. there is an outflow of capital.
This is what most likely scares the officials. After all, according to Chainalysis statistics, 87% of cryptocurrency transactions from Ukraine and 86% from Russia go to the states of Western Europe and the USA.
In the countries of Latin America, the situation is different: the vast majority of the able-bodied population works abroad and sends earnings to their homeland, families, which ultimately benefits the economies of states. And there, officials see cryptocurrencies as a useful tool to increase the inflow of foreign exchange injections by reducing transaction costs.
Their Russian, Belarusian and Ukrainian counterparts, on the contrary, are afraid of the uncontrolled withdrawal of capital from their countries, and therefore they are in no hurry to legalize cryptocurrencies. After all, the only way to stop the outflow is by increasing the investment attractiveness of your own economy for your own entrepreneurs, but this is difficult to achieve. It is much easier to ban virtual currencies.
That is why there is nothing surprising in the fact that it is the countries of Latin America that are the first to legalize payments in virtual coins, and not the parliaments of Russia, Ukraine or Belarus. Unfortunately, so far little depends on the desire of citizens. Too much in our lives is determined by the will of the rulers.
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