than its position in the list of largest economies in the world, took many by surprise as it legalised Bitcoin as an official tender in June 2021. But then Nayib Bukele, the country’s President, was the founder of Nuevas Ideas — literally New Ideas. He is a controversial figure who has aroused admiration as well as derision in equal measure, but he made the world sit up and take notice. Then, in late April, the Central African Republic became the second country to adopt Bitcoin as a legal tender.
What is common between the two countries? For one, both their economies are in disorder — El Salvador’s was described as being on “the point of collapse” in 2012 and the Central African Republic has one of the lowest per capita incomes at purchasing power parity.
Apart from these two, if one looks at the map of the world where cryptocurrency is legalised, one finds that an overwhelming number of them are smaller economies, often characterised as ‘developing’.
Why? For one, there is an earnest attempt in these countries to turn things around. From trying to break free of the shackles of foreign exchange to countering corruption internally, countries are trying to overcome the hurdle of inaccessibility that is associated with traditional financial systems. There is also the case of countries like Cuba, which would like to find a way around sanctions.
Cryptocurrency, not requiring a physical infrastructure, functions like a bank to many in developing countries. An interesting phenomenon here is also the comparatively higher reliance of these countries on remittances, which are burdened by commissions at various levels. Both low transaction costs and shorter reaction times make crypto an alluring option for such countries.
Of course, there remain more countries where crypto is not yet accepted when compared to countries where it is. The primary reason is that blockchain-based disruptive technology is still in a nascent stage and policymakers are yet unsure about the direction it will take. Policymaking is a slow-moving process that has to deliberate upon an array of pros and cons that might not be visible immediately.
