January 20, 2022

Bank of England Concerned about Bitcoin Law in El Salvador

September 2021 marked a historic moment for the crypto industry as El Salvador implemented a law that declared the world’s leading cryptocurrency, Bitcoin, as legal tender, alongside the US dollar. Even though the bitcoin law has enjoyed notable success, which has been repeatedly highlighted on Twitter by the El Salvadorian President, Nayib Bukele, it is not without criticism. Andrew Bailey, one of the prominent figures in the financial sector, expressed his concern over the use of the pioneer cryptocurrency as legal tender in the country. The governor of the Bank of England, Bailey echoed the sentiments that had been recently expressed by the International Monetary Fund (IMF) about this law in El Salvador.

Last week, Bailey spoke at the student union of Cambridge University and gave several reasons as to why the adoption El Salavdor of the top cryptocurrency as legal tender was concerning. He said that he was concerned that a country would opt for Bitcoin as its national currency and what worried him the most is whether the citizens of El Salvador have a complete understanding of the volatility and the nature of the crypto in question. Currently, the country is accepting both the US dollar and bitcoin as legal tender, after the Bitcoin bill was signed into law by Bukele.

Bailey also highlighted a recent warning that the IMF had issued about the adoption of Bitcoin by the government in El Salvador. A report was recently issued by the International Monetary Fund (IMF), which stated that the high price volatility of Bitcoin make it an unsuitable choice for adoption as legal tender. The institution further elaborated that adopting the top crypto as legal tender involves a great deal of risks to financial integrity, consumer protection as well as financial stability in the country. Baily also discussed the concept of a central bank digital currency (CBDC).

The Bank of England’s governor said that while digital currencies are important, they have to be stable, especially if they are to be used as a means of payment. He said that this wasn’t applicable to crypto assets. The El Salvadorian president was vehement in ensuring the Bitcoin law would be successful. After the criticism from Bailey, he also took to twitter to highlight the concerns associated with the fiat currency system. The warnings from the IMF and Bailey had come shortly after the El Salvadorian president announced plans of developing a Bitcoin city.

This city will be a green one because it will use energy generated by a volcano. Furthermore, the city will be free of taxes, with the exception of the VAT tax. Furthermore, it will also be focused on attracting investments. This is the latest initiative that the country has taken when it comes to Bitcoin. In addition, it should be noted that El Salvador is also expanding its Bitcoin reserves because the president took advantage of the dip in the crypto market and bought 100 bitcoins. The country has already made profits from this investment, as Bitcoin went from $53,000 to $57,000.