Bitcoin makes its way into international trade

February 4, 2024

Although there are debates about the use of bitcoin in international trade, the truth is that cryptocurrencies are gaining strength in different countries. Colombia is also taking steps in this direction.

Bitcoin is a virtual currency that allows public traceability of all transactions made. This cryptocurrency is emerging as a possible mechanism for foreign trade transactions. However, its use in this economic sector is still very incipient.

Opportunities for bitcoin in foreign trade

The use of bitcoin in international trade has proponents and detractors. For Daniel Iglesias, professor at the Argentine Business School, one virtue of cryptocurrencies for international trade is to eliminate money transfer costs and intermediaries.

Professor Juan Carlos Portilla of the Universidad de la Sabana, who sees the advantage of using bitcoin in international trade because of its decentralized nature, which takes power away from central banks and democratizes financial inclusion, is along the same lines.

Julio Hector Estrada, former Minister of Finance of Guatemala and current Congressman, summarizes the advantages of the use of bitcoin in that it cannot be devalued or revalued by a State for its own benefit, avoids extortive abuse by dominant powers and improves the traceability of transactions.

Analysts at Citigroup made one of the strongest assertions about the use of bitcoin. In a 2021 report they stated that “bitcoin could become the preferred currency for international trade”, where it is highlighted that, since it is not controlled by any government, it cannot be a veto mechanism. Although they qualify that its future as an international exchange currency is still uncertain.

Carlos Enrile, a Spanish foreign trade consultant, takes the opposite view. According to him, “bitcoin will never serve as a payment currency in international markets”. His assertion is based on three reasons: bitcoin has no state backing, it cannot be a store of value because of the speculation on it, and it can erode the power of central banks.

In a similar vein, Julio Hector Estrada points out that the risks of cryptocurrencies are their lack of credibility due to the lack of economic backing and the lack of a legal system to protect them. The possible use for money laundering and illicit activities, the risk of speculative attacks to generate price volatility and insecurity due to the lack of surveillance and inspection.

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Cryptocurrencies gain momentum among central banks

While the debate continues on the relevance of using bitcoin in international trade, the world’s central banks are advancing in the development of digital currencies issued by the central bank (MDBC). A topic in which progress is being made by leaps and bounds.

According to the IMF, in 2020 only 35 countries were considering the use of MDBCs, but two years later, in July 2022, “more than half of the world’s central banks were studying or developing digital currencies”. At that time he counted 100 MDBCs in research or development stages and two in full operation (eNaira in Nigeria and the Bahamas’ sand dollar).

A year later, in 2023, the renowned international consultancy PwC found that “93% of central banks are involved in the development of an MDBC and 20% are expected to issue one in the near term”. The international think tank Atlantic Council speaks of 130 countries developing CBDCMs by 2023. These countries will account for 98% of the world’s GDP.

In a regional context, Daniel Iglesias highlights that there has been progress in Mercosur countries in adopting cryptocurrencies. But he warns that “the Mercosur bloc has a pending agenda to define a future legal and economic regulation of cryptocurrencies as a form of payment/collection of operations between member countries”.

Another element that can boost the use of cryptocurrencies in foreign trade is geopolitics. For example, Iran and Russia are advancing efforts to establish international payment mechanisms through digital currencies as a way to avoid sanctions, as announced by their corresponding monetary authorities.

But the use of bitcoin for foreign trade does not seem to have such an easy path. Even its adoption for local markets is not conclusive.

The clearest example is San Salvador. According to the Public Opinion Institute of San Salvador, less than 3% of the population of that country used bitcoin on a recurring basis in 2023. Despite all the governmental boost it has been given.

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Bitcoin and cryptocurrencies in Colombia

In Colombia the use of bitcoin is not regulated, but progress is being made in the development of a project to regulate cryptocurrencies, as explained recently in Davos by the Minister of Finance, Ricardo Bonilla.

The Atlantic Council report notes that there have been announcements since 2022 by the Petro government on the possible use of MDBC to reduce evasion. It also outlines alliances by the Banco de la República in 2023 to move towards the use of MDBC.

Citigroup’s Digital Currency Index ranks Colombia 52nd out of 113 countries evaluated in 2022. According to the index, Colombia is a country where MDBC is in an emerging condition.

For its part, the consulting firm PwC in its 2023 report highlights that there are seven new central banks participating in CDBM research with respect to 2022, including Namibia, Tanzania and Colombia.

It is not known whether the future of international trade will be accompanied by bitcoins or another cryptocurrency as a global transaction mechanism, what is known is that the debate is open, the need exists and this mechanism may become a tool that challenges the power of banks, or consolidates the dominance of the financial system.

The discussion is open.