The Central American nation of El Salvador has become the first country to make Bitcoin legal tender. While many countries have been discussing and debating cryptocurrencies and their virtues vis-a-vis fiat currencies, this is the first time that one has taken the step to declare any digital token as legal tender. Whether or not other countries follow in El Salvador's footsteps, September 7 is now a big day in the history of cryptocurrencies, and crypto enthusiasts from around the world are celebrating like there's no tomorrow, and understandably so.
El Salvador's decision is not a knee-jerk reaction, nor was it surprising. The country's 39-year-old president, Nayib Bukele, got the national congress to pass the Bitcoin plan back in June, paving the way for the world's largest cryptocurrency to be declared legal tender in the country. However, the U.S. dollar, which is the national currency, will continue to circulate alongside Bitcoin for the foreseeable future. Meanwhile, El Salvador's fascination with Bitcoin is in direct contrast to some of the biggest global tech companies, like Amazon, which recently denied plans to accept Bitcoin payments by the end of 2021.
With the new legislation going into effect on Tuesday, businesses in El Salvador will be obliged to accept Bitcoin as payment for goods and services. What's more, Salvadorans will now also be able to pay taxes and make other payments to the government in Bitcoin. The bill passed by the El Salvador congress also calls for the creation of a $150 million fund that will be used to guarantee the convertibility of Bitcoin into dollars. This would protect not only folks who use Bitcoin for payments, but also businesses that accept Bitcoin for goods and services. The country is also offering residency to anybody who invests three Bitcoins in the country. With Bitcoin prices hovering around the $50,000 mark as of September 7, that would put the total investment requirement at almost $150,000.
Bitcoin To Help El Salvador Reduce Dependence On The US
As countries like China ban cryptocurrencies out of fear of illegal activities, El Salvador's Bitcoin experiment comes as a breath of fresh air for crypto enthusiasts. It is also expected to help the country decouple itself to some extent from the U.S. economy. Around 20 percent of the country's GDP comes through remittances from Salvadorans working elsewhere, so fiscal decisions by the US government and the Federal Reserve have an oversized impact on El Salvador. The country's young president believes that this decision will change that dependence for good. El Salvador is also expecting the switch to Bitcoin from traditional money transfer methods to save a lot of the remitted money that gets lost in transfer fees.
As part of its newfound affection for Bitcoin, El Salvador is also aiming to become a cryptocurrency mining hub, with the government claiming that just 1-percent of the outstanding value of Bitcoin ending up in the country would boost the nation’s gross domestic product by 25-percent. President Bukele has even claimed that the country will offer "very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanoes" for Bitcoin mining. As for the specifics, they remain unclear. Either way, it will likely be more thorough than the US Treasury's new crypto plan that the government claims will curb tax evasion and illegal activities.
If El Salvador's Bitcoin experiment proves successful, it might pave the way for other nations to follow suit, finally helping Bitcoin and similar cryptocurrencies to fulfill their initial promise of a private, decentralized payment system independent of central banks and government regulators. That said, governments are unlikely to relinquish control over their country's economy this easily, so it will be interesting to see how this pans out in the days and months ahead.
Source: MarketWatch, New York Times, Nayib Bukele (via Twitter)