El Salvador’s pending adoption of bitcoin (BTC) as legal tender has set Central American thinkers to question whether the region could seek to compete with other economies by launching a joint-central bank-run digital currency for use around the region.
In a column for the Salvadorian newspaper La Prensa Gráfica, Claudio de Rosa, a leading economist and financial writer, traced talk of crypto adoption in the nation back to 2017, when academics at the Francisco Gavidia University proposed such an offering in a paper entitled “Are cryptocurrencies the future of economics?”
However, the paper’s authors concluded that adoption would “give rise to controversy due to the fact that “cryptocurrencies can be used in illegal activities” and make it “difficult for governments to bring in tariff policies on transactions executed using [crypto].”
But the column’s author noted that thinkers have recently proposed a third way – a pan-Central American version of a central bank digital currency (CBDC).
The idea was championed by Dr. José Serpas, from the same university’s Public Policy Observatory, in a recent paper named “Cryptocurrencies: A Qualitative study of their use and legislation in El Salvador.” In the study, Serpas claimed that it was necessary for the government to create special legislation for crypto, which “adheres to international parameters,” and called for taxes to be imposed on crypto miners.
But Serpas also proposed launching a Central American digital currency that was “backed by central banks and that meets international quality standards,” as well as “a controlled supply” of tokens and adequate debt-preventative checks and balances.
The case could well be bolstered by the fact that the sand dollar – the world’s first CBDC by most reckonings – was launched last year in the Bahamas, only 1,700km from El Salvador.
Furthermore, larger powers in the greater Latin America region are already shaping up to launch CBDCs of their own, with the central banks of both Brazil and Argentina pushing ahead with preliminary pilots and studies. The banks are pushing ahead with their projects in line with many international players such as the EU, Sweden, Russia, South Korea, and Japan – all of whom are now playing catch-up with China. The Middle Kingdom is on course to showcase its digital yuan in a matter of months.
As such, Central America could find itself some way behind unless it makes a concerted effort.
De Rosa concluded that “digital currencies” will soon “be part of daily life,” and wrote:
“The transition to a digital economy is irreversible. Undoubtedly, central banks – both domestic and global – will design their monetary and exchange policy measures based on digital currencies with due support.”
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