In the “Weekly Round-Up” we summarise and give extra reading suggestions for some of the past weeks financial crime news headlines, powered by Acuminor’s crime universe ThreatView®.
Bitcoin – a legal tender in El Salvador
Now I’m a bit of a geek when it comes to virtual currencies, and I have been following the adoption of Bitcoin as a legal tender in El Salvador. I have so many questions but am equally intrigued.
In 2001 El Salvador adopted the dollar as the official currency instead of the Colón. With the adoption of Bitcoin (BTC) as of this week as a legal tender, you can exchange your BTC to and from dollars in specific ATMs and use it for your regular payments. The new system is aided through a corporation with Bitso, one of the largest crypto platforms in Latin America, to manage the national wallet, Chivo. Additionally, it has a co-operation with an American bank, Silvergate Bank, to facilitate dollar transactions. The rollout had some teething issues with the unavailability of the national wallet and a massive dip in the value of Bitcoins. Still, the project is ongoing and will likely go forward.
Bitcoin was an economic experiment as a contender to an established financial system when it first came out. This adoption of Bitcoin as a legal tender on a national level is a very significant economic experiment. Several other nations aim to adopt a “central bank digital currency” (CBDC), more of a closed-loop system connected to a set value. A national “stable coin”. Adopting Bitcoin has much greater complexity. It is decentralised, available on a global scale (thus open for global market fluctuations in its value), pseudo-anonymous and not connected to national instruments that can aid in inflation controls. Many inbound individual transactions to El Salvador come through the remittance system and comes with a cost that Bitcoin will most likely outperform. But there are so many other issues that we don’t know the answer to. How it affects anything from practical payments to taxation, cross border transactions, the existing technologies that will be used, and how will the nation adopt the new currency?
Increased risk for financial crime
I also see the potential for criminals. The possibility of misusing a virtual currency system is a fact. Using virtual currencies as a payment method between criminals is becoming the norm, and to launder money between virtual currencies and FIAT currencies is a business model. There are many organised crime groups in the region and within their own jurisdiction that are comfortable with virtual currencies and moving a lot of physical currency in dollars. Will El Salvador now provide an environment for money laundering mechanisms on a grander scale?