The Izalco, a volcano in El Salvador. Image by Angela Rucker via wikipedia, License: Public Domain

The Bukele government has presented a draft for a new form of banking that will operate with fewer restrictions using dollars, stablecoins and bitcoins. It is likely to play into the hands of El Salvador’s President Nayib Bukele’s strategy of turning the small Central American country into a financial center thanks to cryptocurrencies.

The government in El Salvador is proposing a bill to create a new type of bank: the “Bank for Private Investments (BPI)”. Such a bank would be able to offer financial services in both US dollars and Bitcoin with fewer restrictions compared to traditional banks.

The BPIs are exempt from some laws, such as restrictions on loans and foreign banking relationships. They require a minimum capital of $50 million and at least two shareholders. They are also able to operate with Bitcoin and stablecoins.

The target group of this new form of banking is not the average resident of the poor Central American country. Only “experienced” or “advanced” investors are allowed as customers, which means that they, whether as private individuals or companies, must have at least $250,000 in liquid assets or $500,000 in securities. In return, they get access to financial services with fewer restrictions and hurdles.

The draft law has been forwarded by President Nayib Bukele’s government to the National Assembly, which will approve it and will come into force.

The “Bank for Private Investments” is another building block in Bukele’s ambitions to transform the small, rather poor and agrarian country. Instead of being the home of gangs and drug barons, El Salvador is to become the glittering home of the rich, a magnet for the world’s capital, not much different from what small Asian and Central American tiger states and tax havens have done, or countries like Luxembourg, Liechtenstein and Monaco. By focusing on Bitcoin and cryptocurrencies, Bukele is betting on an industry whose potential has not yet been explored by other countries and is giving El Salvador the opportunity to take the lead.

By allowing banks to do business in cryptocurrencies with few restrictions, especially for advanced investors, Bukele is introducing Bitcoin and stablecoins as a means of payment into the official financial system. There is great potential in this: stablecoins can stimulate international trade, Bitcoin can become more widely accepted as a unit of account – also for credits and loans – the general infrastructure can more deeply integrate finance and crypto, and such a model could be attractive to investors and founders from abroad.

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