The missing piece in El Salvador’s crypto bet
By Jin Gonzalez, Chief Architect of Finances of Oz
It would be an understatement to say that traditional financial institutions haven’t really welcomed the crypto industry with open arms. Despite recent interest in the crypto game from global investment banks, mainstream financial institutions have been desperate to stop the disruptive impact of Bitcoin and crypto. Unsurprisingly, when Salvadoran President Nayib Bukele decided to make Bitcoin legal tender last year, the IMF took up arms, while crypto enthusiasts celebrated.
Last month, Bukele, 40, announced a new initiative: offering Salvadoran citizenship to foreign investors. Although unorthodox, the young president’s decision is part of a larger ambitious strategy to steer his country’s economy in the right direction after it was ravaged by COVID-19. Bukele’s bold move plans to woo foreign crypto investors, including through a fund to build a “Bitcoin City.” But is that all it needs to encourage an influx of investors?
The UAE model
On closer inspection, Bukele’s crypto plans appear to be overlooking a crucial opportunity. To see this, the president would have to look at how the UAE has approached crypto regulation. The UAE has banked on its Special Economic Zones (including Free Trade Zones) – geographically restricted areas where economic regulations promote business-friendly policies, such as low corporate taxes. These areas are home to dozens of international companies, which naturally leaves plenty of room to mingle and create new opportunities.
The UAE has long leveraged Special Economic Zones to attract foreign companies and investors from an endless list of industries. In 2018, in hopes of becoming a crypto hub, the UAE began laying the groundwork for a crypto-friendly regulatory environment, and its economic zones were central to those plans, particularly due to favorable rules they offered to foreigners. owned companies.
This has led the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA) to establish a framework to regulate the virtual asset activities of multilateral trading systems, brokers, custodians, managers assets and other intermediaries. These crucial steps towards the regulation of digital assets would trigger a domino effect, leading to further initiatives within the Emirates.
In March 2021, the Dubai Multi Commodities Centre, a free zone, signed a memorandum of understanding with the United Arab Emirates Securities and Commodities Authority to establish a regulatory framework for companies offering, issuing, listing and trading crypto assets in the free zone. The MoU essentially facilitates the development of an integrated ecosystem for crypto and blockchain businesses.
Over-regulation is never a good thing in the business world, but when it comes to crypto, smart regulation can protect investors and help the fledgling industry gain legitimacy and access global markets. As the example of the United Arab Emirates shows, smart regulations within economic zones create a win-win scenario for both businesses and the local economy.
While the United Arab Emirates and El Salvador are very different, El Salvador can enjoy the same success as the United Arab Emirates by using its two free trade zones – Zona Franca San Marcos and Zona Franca Internacional – in the same way. After all, the economic advantages that crypto offers – fast and cheap transfers of value – are useful in all parts of the world.
Take advantage of economic zones
Bukele deserves a lot of credit for taking bold steps to normalize Bitcoin and cryptocurrencies in general as part of a strategy to improve his country’s economy. To build on these positive steps, Bukele’s government would be wise to bolster Zona Franca San Marcos and Zona Franca Internacional by enacting crypto-friendly regulatory policies that could attract a wide range of industry businesses.
El Salvador should take advantage of its free trade zones by integrating them into its broader crypto plans and policies. By enacting regulatory frameworks and laws that recognize and protect digital asset businesses and services, El Salvador would transform its free trade zones into thriving and innovative high-tech hubs. This would perfectly position the nation to be a global leader in the Web3.0 revolution.
Instead of using citizenship as a selling point, El Salvador should focus on building and expanding these two free trade zones, allowing and encouraging crypto investors and blockchain companies to operate there. Investors and crypto companies are likely prioritizing regulatory coverage over a new passport.
These benefits will reverberate outside of free trade zones, boosting El Salvador’s overall economy and standard of living while simultaneously helping pave the way for Bukele’s other ambitious projects, like Bitcoin City.
A country like El Salvador is a perfect case study for other developing countries when it comes to normalizing crypto activity. By leveraging their existing free trade zones, the government can further its goals of attracting foreign investment and building a crypto-friendly ecosystem. Of course, it is important to prevent white-collar criminals and other malicious actors who engage in fraud and money laundering from entering this space. To combat this type of activity, authorities operating free zones must invest in creating some type of security body capable of vetting all businesses and investors while monitoring and investigating suspicious transactions.
The writing is on the wall, and it says “the future of finance is decentralized”. While pundits doubted Bukele’s grand vision of building an entire city centered on Bitcoin, a more manageable and quicker move would be to turn existing free trade zones into crypto havens. This would provide quick benefits in service to the Salvadoran people as well as the state.
About the Author:
Jin Gonzalez has created six startups over the years, including two successful exits. Prior to founding Oz, a digital asset project with the goal of connecting a network of special economic zones around the world, he pioneered the adoption and adoption of blockchain technology at Union Bank. of the Philippines, as Director of BD, Fintech and Blockchain. Gonzalez is also the executive director of the Distributed Ledger Association of the Philippines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.