Why choosing crypto as legal tender could be an economic disaster for Caribbean

Latin America and the Caribbean are emerging as favourite locations for crypto developers seeking to get their crypto-currencies selected as legal currency tenders. As per reports, the developers of some mainstream digital currencies are on a hunt to find a suitable country to have their cryptos accepted by law in the settlement of debts. In other words, this can be defined as a legal abutment to use a digital currency as a replacement for fiat currency in terms of regular use.

Since the introduction of cryptocurrencies in 2009, it has experienced massive growth in value, utility and popularity, however as it is not backed by any other asset making them highly volatile to regular value downfalls.

Sources told Associates Times that five very popular crypto developers are currently in the Caribbean region, endeavouring to talk off the governments in using their digital currencies as legal tenders. The developers are touring the region in the ultra-luxury yachts and private planes to reach the head of governments of some Small Island Developing States (SIDS), trying to get the action.

Why are they trying to reach Caribbean heads of government?

Even though these island countries in the Caribbean are small, these nations offer a safe, secure economic environment. If these countries accept the proposals of crypto developers, it will help increase the value of their digital currencies. For instance, a developer’s crypto coin is valued at $1000, but if any of the countries declare to use it as a legal tender, it would eventually increase the value by more than ten times, resulting in huge profits for the developers.

Not only that, sources suggest that these developers are also offering the governments a lot of money to get the legal tender approval of their cryptocurrencies.

The sources confirmed to Associates Times that these developers are trying to lure the government heads into thinking that cryptocurrencies are the future and a replacement for fiat currencies.

The Fall of El Salvador

El Salvador- A Central American country became the first in the world to use bitcoin as a legal tender in September 2021, allowing consumers to use it for all transactions, alongside the US Dollar. The country’s economy is now tumbling as a result of political and economic failure resulted after that. As per official data, El Salvador lost $52 million by gambling on digital assets, leading the country towards a financial crisis.

The decision of using cryptocurrency as a legal tender has now resulted as a nightmare for El Salvador’s economy and created an uncertain future for President Nayib Bukele’s government as elections are approaching in 2024. Bitcoin had been going down for the ninth session on Wednesday, the biggest downfall since 2014.

Following the economic disasters, the International Monetary Fund (IMF) also advised El Salvador to back its decision of making Bitcoin a legal tender. The country’s dollar debt is also the worst-performing in Latin America as it wrestles to secure new financing through a stalled Bitcoin-linked bond.

El Salvador is an example of other countries that are considering using cryptocurrencies as legal tenders. IMF has also warned that the instability and vulnerable nature of digital currencies display that cryptocurrencies are not suitable as a legal tender.

As per the International Monetary Fund (IMF), the risks involving these digital currencies outweigh the little benefit these offer as it posses a threat to consumer protection, financial integrity and macro-financial stability of a country. All digital currencies involve market risks due to high price fluctuations, easy manipulation and lack of backing of an actual asset.