By John Ikani
El Salvador has become the first country in the world to adopt bitcoin as legal tender after its congress approved President Nayib Bukele’s proposal to embrace the cryptocurrency in a bid to promote “financial inclusion”, investment and economic development.
The development comes just days after Bukele announced plans to introduce a bill adopting Bitcoin as legal tender in El Salvador.
A supermajority of legislators in Congress had approved the law in a vote Wednesday as the bill secured 62 out of 84 possible votes.
The cryptocurrency’s use as legal tender – alongside the US dollar – will go into law in 90 days and the bitcoin/dollar exchange rate will be set by the market.
The U.S. dollar is El Salvador’s official currency. About one quarter of El Salvador’s citizens live in the United States and last year, despite the pandemic, they sent home more than $6 billion in remittances.
The country is the smallest and most densely populated of the seven Central American countries. Despite having little level land, it traditionally was an agricultural country, heavily dependent upon coffee exports.
70% of Salvadorians lack access to financial infrastructure. Bitcoin will greatly fill this gap for Salvadorians by banking the unbanked.
What you should know
The vote marks a major milestone in monetary history and could be a gamechanger for business worldwide as Bitcoin becomes a more practical asset and the Central American state a cryptocurrency hub.
The support of a nation state also could go a long way to dispel widespread skepticism of Bitcoin’s long term utility and acceptance, though fears will remain over the token’s volatility.
The designation allows bitcoin, the world’s largest cryptocurrency by market value, to be used to pay taxes.
Businesses would also be obligated to accept bitcoin for payment, though those without the ability to process those payments would be exempt, according to the bill.
Also, Converting bitcoin into other currencies will no longer be subject to capital-gains tax.
Analysts said the Central American country’s experiment would be followed closely elsewhere.
“The market will now be focused on adoption through El Salvador and whether other nations follow,” said Richard Galvin of crypto fund Digital Asset Capital Management. “This could be a key catalyst for bitcoin over the next two to three years.”