Within a week, Bitcoin will be the legal tender in El Salvador. Earlier in June 2021, El Salvador allowed bitcoin as legal tender when Nation’s Congress passed the draft bill by President Nayib Bukele, proposing a formal adoption of bitcoin as a legal form of payment. Since 2001, The U.S. dollar is the official currency in El Salvador, but as the “bitcoin law” would come into effect on September 7, BitCoin will Co-exist with USD as legal tender
Central Reserve Bank of El Salvador (BCR), recently published “Guidelines for the authorization of the operation of the digital wallet platform for Bitcoin and US dollars”, prescribing the set of norms for regulating and governing the financial intermediary, providing the digital currency services to the Nationals.
Guidelines prescribe that, Banks will have to apply to Central Bank for seeking approval, before offering the wallet services to consumers. Companies will have to share their business plans with the Central Bank. After approval by the central bank, wallet providers will be responsible for KYC of the customer and for keeping detailed Log of transaction. The provider of services will have to record the information related to key aspects of the transition including amount of Bitcoin used for the transaction, time of the transaction, estimated value of the transaction in US dollars, name and physical address of each counterparty of the client’s transaction etc. Digital currency transactions will also be translated and recorded in US dollars equivalent.
On the security checks, guidelines provide for keeping a track on IP and IMEI identity of devices along with the provisions of Money laundering. Central Bank will have real time access to the platform providing such services. Father usage will be encouraged through Bitcoin ATM and all the BTC will be fully backed by USD.
Despite what critics says, El Salvador experience is the beginning and will be followed by many countries, where digitised version of sovereign currency exists along with key stable digital currency like BTC. The architecture of guidelines offers an insight into the future, where key private digital currency will co-exist with soverign digital currencies.
European Commission has also proposed guidelines for enabling digital currency ecosystem i.e. Markets in Crypto-assets Regulation (MICAR) to make Europe fit for the digital age and to build a future-ready economy with the aim to ensure that the EU stands ahead in digital revolution and drives innovation.
In India, Regulators are taking small steps for innovating, whilst preserving the ecosystem. Sometime back, Indian Government had introduced the draft bill “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019”. Though the bill intends to ban the private digital currency, it intends to lay foundation for digital rupee. US and other major country are also working on sovereign digital currency. India cannot remain insulated from the global fintech evolution and will follow the steps. Earlier SEBI prescribed guidelines for adoption of block chain for monitoring the lending framework.
Sovereign digital rupee will see the light of the day within few years’ time, depending on how fast US & Europe are adopting it. Banks and key private players will be the dominant player of the wallet ecosystem, who will be holding the digitized currency. Some of the key players will be authorized to run the centralized platform which will act as an interface to various wallet players. Future will be disruptive, many of the banks in traditional lending business may lose their valuation and give way to strong fintech players offering wallet services. Though El Salvador is a small country, it will prove to be a valuable experiment for the evolution of fintech industry and operational bottleneck. It will be safe to assume that El Salvador will be used as a case study by Regulators, for calibrating the key risk and opportunities, whilst framing policies and setting standards.
Bureau Galactik Views