SAN SALVADOR – El Salvador became the first country in the world to adopt bitcoin as legal tender after Congress approved President Nayib Bukele’s proposal to adopt the cryptocurrency.
With 62 out of 84 possible votes, lawmakers voted to create a law to adopt bitcoin, despite concerns about the potential impact on El Salvador’s program with the International Monetary Fund.
Bukele touted the use of bitcoin for its potential to help Salvadorans living abroad send money home, while claiming that the US dollar will also continue to be legal tender.
“This will bring financial inclusion, investment, tourism, innovation and economic development for our country,” Bukele said in a tweet shortly before the vote in Congress, which is controlled by his party and its members. allies.
The use of bitcoin will be optional for individuals and will not pose risks to users, said Bukele, with the government guaranteeing convertibility into dollars at the time of the transaction through a trust created with the bank of development of the BANDESAL country.
By law, bitcoin must be accepted by businesses when offered as payment for goods and services. Tax contributions can also be paid in cryptocurrency.
Its use as legal tender will begin in 90 days, with the bitcoin-dollar exchange rate set by the market.
Cryptocurrency supporters hailed the move as legitimizing the emerging asset, but its impact on the regulation, taxation or adoption of bitcoin in other countries remains to be seen.
Still, there was no immediate sign that other countries would follow El Salvador’s adoption of bitcoin.
“Whether this becomes the first of what becomes a trend and then snowballs, or if it will be an incident, we’ll only know through history,” said Brandon Thomas, partner at Grayline Group consulting firm .
Analysts also said the move could complicate talks with the IMF, where El Salvador is seeking a program worth more than $ 1 billion.
Bitcoin had its best day in two weeks, rising 6% to $ 35,200.
“The market will now focus on adoption via El Salvador and whether other countries will follow suit,” 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.”
Emerging economies – where banking penetration is much lower than in developed countries and reliance on money transfers from abroad much higher – have quickly warmed up to cryptocurrencies.
Outside of the United States, the countries with the highest crypto production and trading volumes are all developing countries, according to the Bank of America (BofA), including China, Colombia, and India.
But the use of digital currencies in general can also present risks for dollarized economies, which have adopted foreign currencies as legal tender, like El Salvador, he added.
Dollarization “is a major issue for macro and financial stability in many emerging markets, and it could worsen if digitization facilitates access to foreign currencies,” said David Hauner of BofA.
El Salvador relies heavily on the money sent back by workers overseas. World Bank data showed that remittances to the country amounted to nearly $ 6 billion, or about one-fifth of GDP in 2019, one of the highest ratios in the world.
It is not known what proportion of remittances sent to El Salvador are in the form of bitcoin.