El Salvador Has Become The Worlds First Country To Legalize Bitcoin As A Form Of Payment
El Salvador has become the world's first country to legalize bitcoin as a form of payment
El Salvador has become the first country in the world to adopt bitcoin as legal tender, following the adoption of President Nayib Bukele's proposal. A supermajority of 62 out of 84 votes was required to win the vote.
President Obama intends to sign this legislation into law later tonight or early tomorrow morning.
President Bukele explained in an early morning Twitter Space conversation that he is using bitcoin because it has the potential to assist citizens of his country living abroad in sending remittances home. He also stated that the US dollar will remain legal tender.
This implies that El Salvador's new economy will be heavily reliant on money sent home by foreign workers. According to World Bank data, the country received nearly $6 billion in remittances in 2019, accounting for nearly a fifth of GDP, one of the highest ratios in the world.
He stated that approximately 70% of El Salvador's population lacks access to traditional financial services. In theory, cryptocurrency enables quick and inexpensive cross-border money transfers without relying on the remittance firms that are typically used for such transactions.
Additionally, the president stated in a tweet shortly before the congressional vote that bitcoin would "bring financial inclusion, investment, tourism, innovation, and economic development to our country."
“Use of bitcoin will be voluntary for individuals and will pose no risk to users,” Bukele explained.
According to the proposed regulation, its use as legal tender will take effect in 90 days, with the market setting the bitcoin-dollar exchange rate. Through a trust established at the country's development bank BANDESAL, the government will guarantee convertibility to dollars at the time of transaction.
This will be facilitated through the establishment of a trust at the Development Bank of El Salvador that will act as a clearinghouse for the instant conversion of bitcoin to US dollars and will assume merchant risk. The trust will hold approximately $150 million in assets.
Under the law, businesses must accept bitcoin as payment for goods and services. Also, tax contributions can be made in bitcoin.
Painted Picture by the President
“If there is an ice cream parlour, he does not want to take the risk; he has to accept bitcoin because it is a mandated currency, but he does not want to take the risk of convertibility; therefore, he wants dollars deposited in his banking account, so that when he sells the ice cream, he can ask the government to convert his bitcoin to dollars.” the President was quoted as saying.
El Salvador's government officials will meet with representatives from the International Monetary Fund in the coming days to discuss the plan. According to analysts, the move could complicate El Salvador's negotiations with the IMF, where the country is seeking a more than $1 billion loan.
The announcement has pushed bitcoin prices slightly higher. After three weeks of decline, the price increased by 2% to $34,067.
