The introduction of bitcoin is transforming supply chain relationships in the finance and other sectors of El Salvador. Websites like Bitcoin Motion offer a better bitcoin trading analysis. This small country in Central America exports blackberries to the US and Canada but was forced to use cash-based transactions, which proved expensive, slow, and vulnerable to natural disasters. Bitcoin adoption in El Salvador has allowed businesses of all sizes to switch to other payment methods.
Bitcoin also empowers citizens who otherwise have few opportunities for economic growth by providing more avenues for entrepreneurial activity through new technologies such as blockchain applications that can even be run on low-cost Android devices. So let’s discuss how this tiny country moves from being a mere supplier of fruits, coffee, sugarcane, textiles and clothing goods to becoming a technological innovation producer and exporting it abroad using cryptocurrencies.
El Salvador is reshaping the country’s economy.
The supply chain management industry, which encompasses manufacturers, wholesalers, retailers and transporters, must now be restructured to accommodate bitcoin payments. In other words: they need to be paid in bitcoin via an intermediary like BitPay or Coinbase, which will automatically convert it into fiat currency like USD or CAD at the moment of transaction settlement.
El Salvador has set a new benchmark and has brought the most awaited financial revolution to the entire globe by just announcing bitcoin as a legal tender. It is a fact that many governments around the world have looked at El Salvador’s example and are following suit. Countries such as Japan and Australia have also moved towards adopting bitcoin by legalizing it as a payment method.
Delays in cross-border payments before bitcoin
Businesses in El Salvador are now switching to cryptocurrencies at an accelerating pace. They are doing this because the cost of cash-based transactions has become too high, and payment delays often stretch to weeks.
In addition, the number of businesses accepting cash-based payments has been declining steadily due to the costs associated with these payments.
The situation is different from country to country, but small businesses worldwide do not accept credit card or debit card payments for small purchases. On the contrary transaction cost of the bitcoin network is not even 1% of the entire transaction amount.
The country has realized that bitcoin is much better than credit and debit cards as it has no extra processing fees, and the bitcoin network charges much less than Visa or MasterCard. Therefore, bitcoin adoption in El Salvador was a necessary change. However, the situation in El Salvador was similar to other countries where most small merchants still accept cash-based payments.
Lessons other countries should learn from El Salvador are:
(a) The total amount remitted to El Salvador is approximately $5 billion, including remittances sent by Salvadoran merchants living abroad and foreign direct investment inflows. (b) 15% of import and export transactions in El Salvador are cash-based. It means that about 15% of all commercial transactions are done with cash and account for 30% of all non-productive expenditure in the country – a significant drain on its economy. (c) Remittances from Salvadorans living abroad account for 7.3% of Gross Domestic Product (GDP). According to the Central Bank, remittances from Central America account for 17% of GDP in the region. Bitcoin has decreased the remittance fees of this country by almost 50%.
According to the World Bank and International Monetary Fund, Salvadoran inflation ran at 7.3% in 2018, making it one of the highest in Latin America. Inflation: A situation where money loses its value over time. It is one reason why bitcoin is vital to this country. It has almost eliminated all possibilities of inflation while still providing the same facilities that some countries enjoy through their national currency.
The small businesses from El Salvador can now export their goods to previously unreachable countries due to the high cost of transaction fees and other restrictions associated with traditional payment methods like Western Union and Money Gram for remittance purposes. Bitcoin has solved this problem for good without any extra effort from the government.
The total time taken for remittance to be sent from El Salvador was about ten days which is a long time for some countries. However, bitcoin offers faster transactions in terms of speed and cost. The RBA reports that Australia’s average credit card transaction fee is around 2%. It is significantly higher than the current cost of buying bitcoins since bitcoins have a lower transaction fee than credit cards, debit cards, and other payment methods.
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