El Salvador has been making headlines around the globe for months now thanks to its decision to adopt bitcoin as an official legal tender. But after the implementation, what next? There have been numerous calls for the country and its President, Nayib Bukele, to review and repeal this decision as it had the potential to adversely harm the nation’s economy.
Calls came from the IMF and Bank of England to remove the digital currency as legal tender to prevent devastating effects on the county’s economy. However, the numbers for 2021 are in showing record growth in El Salvador’s GDP. But did Bitcoin have anything to do with this growth?
El Salvador Records Double-Digit Growth In GDP
2021 was a rollercoaster for most countries and their economies. Coming out of the 2022 lockdowns, countries had to get creative given that travel was restricted across the globe. While it was off to a rocky start, most countries soon found their footing, and so did El Salvador, who with its thriving economy has been one of the better recoveries of the pandemic.
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The small North American country had recovered so well in fact that its GDP growth rate had come out in the double digits for the year. This is a record for the nation that has never recorded double-digit growth. Data shows that El Salvador saw its GDP climb by 10.3% in just 2021. Coming out from the previous year where it saw a -7.9% GDP change in 2020 due to the pandemic, this has been a welcome change for it.
The main driver of this growth is export which grew 13% in January 2022 compared to January 2021, according to a Twitter post by President Bukele. This could point to the country heading towards another double-digit growth in 2022.
But What Has Bitcoin Got To Do With It?
One aspect of El Salvador’s GDP that is not as talked about is remittances. By making bitcoin a legal tender, it has successfully reduced remittance fees that went as high as 50% to 0, where citizens in the diaspora are able to remit money easily and seamlessly. Since remittances make up a large percentage of the GDP, this has no doubt had a direct impact on how much money is being remitted to the country.
BTC continues to trend around $27K | Source: BTCUSD on TradingView.com
Since it is less than a year since El Salvador announced bitcoin as legal tender, it may be too soon to tell what the impacts have been, whether negative or positive. However, one thing that is certain is the exposure that this move has brought to the country.
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The nation which people would previously find hard to pinpoint on a map made it onto the radar of big players with this bold move, going further to propose a bitcoin city where everything will be paid for in bitcoin. It is also gearing up to launch the first bitcoin bond and President Nayib Bukele has floated the idea of giving citizenship to individuals who invest in the country.
Featured image from CoinGape, chart from TradingView.com