On June 15, Tim Jacklich — a senior analyst for AMI’s payments department — was interviewed by Latin America Advisor about El Savador’s recent decision to make Bitcoin a legal tender in the country. Jacklich discussed  both the benefits and risks of this policy:

“Upon a closer look, this policy is a risky gambit, likely offering some benefits but also exposing the Salvadoran economy to substantial risks. There is some merit to Bukele’s proposal that Bitcoin transfers replace traditional remittances. Bitcoin transfers can indeed be faster and cheaper than legacy methods, owing to the reduced need for financial intermediaries. However, congestion on the Bitcoin blockchain can boost transaction fees, blunting Bitcoin’s cost advantage during peak network usage.

Bukele is less convincing in his argument that Bitcoin-related investment would represent an economic boon for El Salvador. New bitcoin inflows would likely behave like short-term, procyclical ‘hot money,’ attracted by the favorable tax regime but with limited economic development benefits. As for the risks, El Salvador’s ‘Bitcoinization’ could be painful. The Bitcoin Law requires most Salvadoran merchants to accept Bitcoin as a form of payment, presumably when the law takes effect 90 days after its passage. If enforced, this provision would compel merchants to make costly investments in Bitcoin wallets and processing technology, even as a near-term surge in consumer-side Bitcoin uptake seems unlikely.”

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