Bitcoin: Which countries could follow El Salvador by making it legal tender?

Could Brazil, Paraguay and other countries in Latin America form a ‘free trade zone’ with the cryptocurrency as legal tender?

Bitcoin banners are seen outside of a small restaurant at El Zonte Beach in Chiltiupan, El Salvador 8 June, 2021 (Reuters)

El Salvador may be the first country to adopt bitcoin as legal tender, but recent developments suggest that it might not be the last.

Politicians in several other countries in Latin America have already expressed an interest, with some even adding bitcoin laser eyes to their Twitter profiles as a symbol of support for the cryptocurrency.

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One such lawmaker is Paraguay Congressman Carlos Rejala, who hopes to pass a bill next month aimed at attracting crypto businesses. If it passes, the next step would be to present a second bill that would officially recognise bitcoin as legal tender.

“As I was saying a long time ago, our country needs to advance hand in hand with the new generation,” he said this week. “The moment has come, our moment. This week we start with an important project to innovate Paraguay in front of the world.”

Panama politician Gabriel Silva responded to the news from El Salvador by warning that his country risked falling behind its regional neighbour in terms of economic development if it did not follow suit.

The Congressman revealed on Monday that he is currently preparing a similar proposal to present at the nation’s Assembly.

“This is important. And Panama cannot be left behind,” he tweeted. “If we want to be a true technology and entrepreneurship hub, we have to support cryptocurrencies.”

Bitcoin banners are seen outside of a small restaurant at El Zonte Beach in Chiltiupan, El Salvador 8 June, 2021 (Reuters)

Elsewhere, elected officials in Argentina, Brazil, Mexico and Nicaragua have all spoken favourably about bitcoin, with some pledging to introduce legislature that is favourable to cryptocurrencies.

There are numerous obvious benefits to formally recognising bitcoin as legal tender, such as slowing inflation, enticing crypto entrepreneurs, and increasing financial inclusion of those forgotten by the formal economy. But there are also some risks that come with it.

Speculation within bitcoin forums and among crypto commentators on Twitter is that the US could target El Salvador with sanctions, as it represents a threat to the strength of the US dollar - the other official currency of the country. One way to potentially mitigate against this risk would be for countries that accept bitcoin as legal tender to form an economic alliance.

“Other countries must follow El Salvador FAST!! Paraguay, Argentina, Panama, Brazil, Nicaragua. El Salvador’s decision to make bitcoin legal tender has geopolitical implications. US will react, with IMF or aircraft carriers. Easy to attack one, difficult to attack many,” wrote prominent market analyst PlanB.

“A free trade zone with bitcoin as legal tender and 0 per cent wealth/CGT tax would be stronger if some oil producing countries like Iraq, Iran, Libya etc join. Pay for oil in bitcoin instead of petro dollar. Plus some already bitcoin friendly nations like Dubai.”