What are the benefits and potential risks?

On September 7, El Salvador became the first country to establish Bitcoin as legal tender, a move that generated enthusiasm among cryptocurrency advocates but concern from many other observers. We believe there are reasons to be concerned, but also see some positives, as noted below.

Positives include:

  • Greater financial inclusion in a country where many do not have access to banks
  • Lower remittance and payment processing costs
  • Potential to attract business and tourism from the global cryptocurrency community

Negatives include:

  • Possible financial volatility
  • Danger of easy capital flight
  • Potential depletion of bank capital
  • Environmental concerns tied to intense energy use
  • Illegal use of cryptocurrency

El Salvador’s experiment will need to be closely monitored as its people gradually increase their use of Bitcoin.

For more details, read our Insights: El Salvador and Bitcoin