If bitcoin become as a legal currency, would it be good for you?
If bitcoin become as a legal currency, would it be good for you?
If bitcoin become as a legal currency, would it be good for you? In Pakistan what will happen? Bu Latin American country El Salvador has become the first country in the world to legalize the bitcoin as a legal currency.
After a vote in Congress, the bitcoin now became the legal equivalent of the US dollar in the country within 90 days.
The new law means that every business will have to accept bitcoins in exchange for their services or goods, provided they have the technology to do so.
Though some countries like Kyrgyzstan, Bolivia, Bangladesh, Iran, Nepal, Thailand, India Denmark and Ecuador have banned or discourage the bitcoin.
President Nayib Bukele said the move would make it easier for El Salvadorians living abroad to send money home. This process is called remittance.
Many countries, including El Salvador, depend on remittances from expatriates. In El Salvador, these remittances account for 20% of gross national product (GDP).
More than two million Salvadorians live abroad but have strong ties to their homeland and repatriate more than 4 billion dollars a year.
Remittances in Pakistan
In Pakistan, remittances jumped by a hefty 29pc to an all-time high of $24.2bn during the 10-month period between July and April 2021. According to official statement, they provide key support to currency and forex reserves by bridging the balance of payments in the face of reduced dollar flows from other sources.
Cryptocurrencies including bitcoin are not officially regulated in Pakistan, however, it’s not illegal or banned. As of 16 January 2021, the State Bank of Pakistan has not authorized any individuals or organizations to carry out the sale, purchase, exchange, and investment of virtual currencies, coins, and tokens.
Will bitcoin or cryptocurrency be the best source of remittances?
“No middle man”
When people send money to their home countries, they usually resort to a bank or other financial service to facilitate the transaction.
But these service providers make the process of sending money across borders very expensive.
For example, if a person is sending 1000 dollars from the United States to El Salvador, and even if there is a ‘zero commission’ on the exchange rate, consumers still have to pay a hefty amount of bank charges on both sides.
One of the advantages of bitcoin or cryptocurrency is that it does not depend on any such middleman.
Hence, bitcoins can be attractive to poor countries and those who want to But keep in mind that crypto currencies can pose many other major risks.
“This is because low-income countries have long suffered from the weakening of their currencies and the changes in the market that lead to inflation.”
If the bitcoin becomes more widely accepted and widely used, its value can stabilize.
“That’s why most developing countries use the major currencies of developed countries, such as the dollar, to complete transactions.”
“But relying on another country’s currency can lead to very costly problems.”
Fluctuate in value
But cryptocurrencies also have disadvantages and can affect Salvadorians’ ability to receive money.
The bitcoin is a virtual asset and has nothing to do with the real economy. Its value has fluctuated greatly in a very short period of time.
And not everyone knows how it works and the dangers associated with it.
Unlike traditional banking systems, the bitcoin does not have a system that protects the user from fluctuations in the value of the bitcoin.
Kenneth Rogoff, a professor of economics at Harvard University and former chief economist at the International Monetary Fund (IMF), says the two main characteristics of a successful currency are that it is effective for transactions and that it is your wealth. Can protect the value of your wealth.
Bitcoin does not have both properties, he says.
“The fact is that it is not widely used in the legal economy. Yes, a rich man sells it to another man, but this is not the final use. And without it, it has no long-term future. ”
He says bitcoin is being used almost exclusively for betting.
Although the bitcoin is growing in popularity, it is still rarely used for transactions. People who have a bitcoin want to make more money by keeping their cryptocurrency.
Some people say that crypto currencies can be a way to avoid high inflation.
During the global epidemic, many large countries have been printing notes to keep their economies afloat.
Creation of bitcoins and supply
The more notes you print in the traditional currency system, the lower the value of the currency.
Usually people do not notice this decrease in value because the money they have remains the same. But they do notice that their shopping, eating out and watching movies are becoming more and more expensive.
Bitcoin is a different matter. The supply of bitcoins is carefully controlled and limited. No one can create more bitcoins on their own.
There will never be more than 21 million bitcoins in the world and each bitcoin can be divided into 100 million more units called satoshi.
This prevents the devaluation of the “normal” currency, which is well known in Venezuela and Zimbabwe.
Criticism
“There is no doubt that there will always be critics, possibly from rich countries,” says Nigel Green, who is CEO of deVere Group a leading independent financial advisory organization of the world.
US Treasury Secretary Janet Yellen has previously called the bitcoin a “highly ineffective way of doing business.”
“Excessive” use of electricity
He also expressed concern over the “excessive” use of electricity in digital currency transactions.
It is unclear how much electricity the bitcoin uses.
According to the University of Cambridge Center for Alternative Finance (CCAF), which conducts research on cryptocurrencies, the bitcoin’s total electricity consumption ranges from 40 to 445 terawatts per year, averaging 130 terawatts.
In contrast, the UK’s electricity consumption is just over 300 terawatts per year, while Argentina’s electricity consumption is in line with CCAF’s bitcoin estimates.
Tax evasion?
Critics also say that while traditional banks can keep an eye on transactions, bitcoins can be a tax evasion for the very rich.
Banks considering creating their own digital currencies
Meanwhile, many of the world’s central banks are considering creating their own digital currencies, while China has even launched a cryptocurrency under central control.
And while digital currencies issued by banks are subject to government regulations, cryptocurrencies are completely free of any such regulations.
Salvadorian President Nayib Bukele had earlier said in a statement that the bitcoin would open the door to financial services for 70 percent of Salvadorians who still do not have bank accounts.
He wrote in a tweet that “this will add more people to the financial system, and boost investment, tourism, innovation and economic growth in the country.”
Cryptocurrencies including bitcoin are not officially regulated in Pakistan, however, it’s not illegal or banned. As of 16 January 2021, the State Bank of Pakistan has not authorized any individuals or organizations to carry out the sale, purchase, exchange, and investment of virtual currencies, coins, and tokens.
