El Salvador has become the first country in the world to adopt bitcoin as legal tender after El Salvadoran Legislature voted President Nayib Bukele’s proposal to embrace the cryptocurrency. The vote was won by a supermajority of 62 out of 84 votes.
The president intends to sign this into law later tonight or early in the morning.
President Bukele explained on a Twitter Space conversation early today that the use of bitcoin is because of its potential to help the citizens of his country living abroad to send remittances back home. He said that the U.S. dollar will also continue as legal tender.
This implies that the El Salvador’s new economy will rely heavily on money sent back from workers abroad. World Bank data showed remittances to the country made up nearly $6 billion or around a fifth of GDP in 2019, one of the highest ratios in the world.
He said that some 70% of people in El Salvador lack access to traditional financial services. The cryptocurrency offers, in theory, a quick and cheap way to send money across borders without relying on remittance firms typically used for such transactions.
The president had also said in a tweet shortly before the vote in Congress that bitcoin “will bring financial inclusion, investment, tourism, innovation and economic development for our country.”
“The use of bitcoin will be optional for individuals and would not bring risks to users”, Bukele said.
According to the proposed regulation, its use as legal tender will go into law in 90 days, with the bitcoin-dollar exchange rate set by the market. The government will guarantee convertibility to dollars at the time of transaction through a trust created at the country’s development bank BANDESAL.
This will be facilitated under a trust that the government will set up at the Development Bank of El Salvador will act as a clearinghouse to instantly convert bitcoin to U.S. dollars and take on merchants’ risk. The trust will hold about $150 million dollars.
Under the law, bitcoin must be accepted by firms when offered as payment for goods and services. And, tax contributions can also be paid in bitcoin.
“If there’s an ice cream parlour, he doesn’t really want to take the risk, he has to accept bitcoin because it’s a mandated currency but he doesn’t want to take the risk of convertibility, so he wants dollars deposited in his banking account, when he sells the ice cream, he can ask the government to exchange his bitcoin to dollars”…the President was quoted to have said.
Government officials from El Salvador will meet with the International Monetary Fund in the coming days to discuss the plan. Analysts have said the move could complicate talks with the IMF, where El Salvador seeks a more than $1 billion program.
The announcement has influenced the prices of bitcoin a little up. The price went up by 2% to $34,067 after 3 weeks of decline.
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