9 Jun - 3 min read
In a historic move, the Republic of El Salvador has become the first country in the world to adopt cryptocurrency Bitcoin as a legal tender (currency). Lawmakers in the Central American nation’s Congress voted heavily in favour of the Bitcoin Law, securing 62 out of 84 votes.
With this new law passed, businesses in El Salvador will soon be able to trade in Bitcoin – just as they normally would with fiat money – and tax contributions can also be paid with said cryptocurrency. On top of that, exchanges in Bitcoin will not be subjected to capital gains tax as it is no longer considered a form of investment.
“The purpose of this law is to regulate Bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying,” stated the new law. It added that the El Salvador government will also promote necessary training and mechanisms to enable Bitcoin transactions among the citizens. This effort is likely to be carried out in collaboration with Strike, a digital wallet company that recently signed a partnership with the nation to equip its financial infrastructure with Bitcoin technology.
The president of El Salvador, Nayib Bukele – who submitted the Bitcoin Law to the country’s Congress for voting earlier today – further emphasised that this latest update will bring financial inclusion, investment, tourism, innovation, and economic development for the country. “The government will guarantee the convertibility to the exact value in dollars at the moment of each transaction,” Bukele said.
For context, El Salvador currently uses US dollar as its sole legal tender, and its economy is highly reliant on the remittances from Salvadorans who work overseas; their earnings is almost comparable to 22% of the country’s gross domestic product (GDP) – one of the highest ratios globally. In fact, official reports indicated that remittances to the country in 2020 came up to a total of US$5.9 billion. With Bitcoin now approved as a legal currency, those working abroad will be able to conveniently send money back home without having to rely on intermediaries.
Additionally, it is estimated that about 70% of the El Salvador population are unable to access traditional financial services. The introduction of Bitcoin as a legal tender is also expected to help increase financial inclusion.
Many Bitcoin enthusiasts around the world have lauded this as a major step forward for cryptocurrency, but Bitcoin – like all other digital currencies – is notorious for its volatility. Just last month, it took several hits which saw its value gradually decline after rising to a meteoric high of above US$63,000 in April. This may dampen the general public’s acceptance of the digital currency in El Salvador.
El Salvador’s use of Bitcoin use as a legal tender is expected to go into law in 90 days.