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Cryptocurrency and controversies about the future

El Salvador recently became the first country in the world to legalize bitcoin, which will be used to pay for goods and services as well as taxes.

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According to President Nayib Bukele, El Salvador has bought 400 bitcoins and would buy further. He affirmed that using bitcoin would help this country save US$ 400 million in remittance transfer fees each year, and help people without a bank account use electronic payments.

It will make financial services affordable in a country where up to 70% of the workforce is estimated to be active in the broad underground economy, which relies heavily on cash, government officials said.

El Salvador has installed 200 bitcoin ATMs across the country. The Ministry of Finance has created a $150 million fund at the state bank Banco de Desarrollo de la Republica de El Salvador (Bandesal), to support the transactions.

Bitcoin will become popular in this country, after the government launched a bitcoin wallet called Chivo. Users who register for an El Salvador personal identification number (ID) will have bitcoin worth $30 in the wallet.

There are different opinions about the legalization of Bitcoin in El Salvador. Cryptocurrency advocates excitedly refer to the day it was legalized in El Salvador as B-Day Tuesday or Bitcoin Day.

The International Monetary Fund (IMF) has warned about the risks of using bitcoin. The World Bank also rejected a request from the El Salvador government to help the country legalize bitcoin, citing environmental and transparency constraints.

According to a recent poll organized by the University of Central America, the El Salvador government's bitcoin initiative did not receive much support from the people. More than 65% of respondents said they did not want the government to spend tax money on legalizing bitcoin and up to 80% expressed little or no confidence in this digital currency.

First steps

Instead of bitcoin, many countries are developing their own digital currency. Driven by technological advancements and the development of contactless payments, Central Bank Digital Currencies - CBDC - an official cryptocurrency of a country - promises to become the next factor to change the landscape of the banking and payment industry around the world.

The CBDC will allow transactions at home and abroad to be more secure and efficient at a lower cost. Although CBDC is still a relatively new concept, many central banks around the world have shown interest and are considering the widespread application of CBDC.

According to the CBDC Development Index Report, released recently by PwC Vietnam, more than 60 central banks worldwide have been researching CBDCs since 2014. In Asia, Cambodia, Thailand, China, South Korea, and Japan have officially joined the race to develop cryptocurrencies.

The development of CBDC has been accelerated through many wholesale and retail projects. Finally, more than 88% of CBDC projects, which are in pilot or production phases, use blockchain technology to take advantage of some of the key advantages of this technology such as high security, transparency and diverse programming capabilities.

The three largest CBDC projects in Asia belong to Cambodia, China and South Korea. Cambodia's Bakong project is currently ranked first in Asia, and second globally, after only Bahamas. This is one of only two retail CBDC projects that have been officially put into operation.

In August 2021, Bakong took another step forward with the launch of cross-border transactions between Cambodia and Malaysia. Meanwhile, although China and South Korea have both begun piloting retail CBDCs, they have not yet set an official date for the launch.

No wholesale CBDC project has really matured. However, about 70% of the announced wholesale CBDC projects are piloting with many innovative initiatives.

These programs mostly focus on transnational projects, allowing central banks to test international connectivity and interoperability of projects. Some prominent wholesale projects in Asia include Inthanon-LionRock (Hong Kong Special Administrative Region - Thailand), Ubin (Singapore) and Stella (Japan).

Meanwhile, the International Monetary Fund (IMF) wants to curb the rapid growth of the digital currency market as more than 100 cryptocurrencies are planned by central banks, and stablecoins and other cryptocurrencies are becoming increasingly popular.

The IMF has warned that cryptocurrencies have become unexpectedly popular with the emergence of bitcoins, stablecoins, national digital currencies... They are invading the money market without "multilateral supervision", which can cause chaos in the global financial system.

However, Nigel Green, CEO of the deVere Group investment fund, believes that cryptocurrencies will be the road of the future, no matter who wins or loses in proving them. The concept of electronic money must be defined.

Vietnam is cautious

The Vietnamese Government has launched a financial strategy to 2025, with a vision to 2030 under Decision 149/QD-TTg. The State Bank of Vietnam (SBV) has taken on the role of researching and piloting the use of cryptocurrencies, based on blockchain technology, in the next three years.

As Vietnam has been promoting electronic payments since 2018, CBDC will play an important role in the cashless payment ecosystem in the country. This is also consistent with Decision 942/QD-TTg issued on June 15, 2021 by the Government, setting out a development strategy towards a digital government.

Dinh Hong Hanh, Head of Financial Advisory Services at PwC Vietnam, said: “This is the first time Vietnam has access to Central Bank cryptocurrencies. Decision 942/QD-TTg promises to elevate Vietnam's position to other countries with advanced technology. At the same time, this decision shows the commitment of the Government of Vietnam in building a cashless society and strong digital economy in the future.”

Although Vietnamese law has not yet recognized cryptocurrencies as a legal payment method, this is the right time to explore this trend. A prominent example is the research cooperation program on the legal basis for virtual currency and virtual asset management between the State Bank of Vietnam, the Ministry of Justice and the Ministry of Finance.

These efforts show that the Vietnamese Government has taken a more open stance on digital currencies. Although the digital currency pilot program has not set a specific time, the move of policymakers in Vietnam will be a focus in the near future.

Duy Khanh

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