El Salvador approved bitcoin as legal tender in the country

El Salvador’s Congress approved in the early hours of Wednesday a law that will convert bitcoin into legal tender in the country, making this Central American country the first to adopt a cryptocurrency with which it seeks to boost its economy.

“The purpose of this law is to regulate bitcoin as legal tender, unrestricted with liberating power, unlimited in any transaction”, reads part of Article 1 of the new approved regulation called the Bitcoin Law, which will be sent for its respective sanction to President Nayib Bukele.

The Bitcoin law has only 16 articles, and was approved by the votes of 62 deputies, among them 56 from the bench of the majority party Idées Nouvelles (NI), allies of President Bukele, who announced that this week the regulation would be presented for approval.

“The Bitcoin law has just been approved by qualified majority in the Legislative Assembly. 62 votes out of 84! History!”, was the president’s first reaction to his Twitter account.

Indeed, the bill was presented to lawmakers on Tuesday evening by the Minister of the Economy, María Luisa Hayem, and after a quick discussion in the Congressional Finance Committee, it obtained approval to be presented before the legislative plenary session which ultimately passed the law even though minority opposition parties refused to support the law.

– attractive El Salvador –

By law, “the exchange rate” between bitcoin and the US dollar “will be freely fixed by the market.”

“It is a law that will put El Salvador on the radar of the world, we will be more attractive for foreign investment”, considered to be the deputy Romeo Auerbach of the Gran Alianza por la Unidad Nacional (Gana) party, also an ally of Watch.

For her part, the deputy Anabel Belloso, of the opposition National Liberation Front Farabundo Martí (FMLN), regretted that “the law was not discussed with specialists, nor with patience”.

“The law has many implications in the economic sphere and not everyone knows how it will work, considering that cryptocurrencies are volatile in the market, they are unstable,” Belloso argued.

According to the regulations, “Every economic agent must accept bitcoin as a means of payment”, but will be “excluded” from receiving payments in bitcoin those who “in fact notorious and obviously do not have access to technologies allowing to carry out transactions in bitcoin”.

The law also specifies that for “accounting purposes” the US dollar will be used as the “base currency” and states that “all obligations in money expressed in dollars, existing before the date of entry into force of this law , can be paid in bitcoins ”.

According to the regulations, the state “will provide alternatives” which will allow the user “an automatic and instantaneous convertibility of bitcoin into dollars if he wishes”.

– Volatile bitcoin? –

For the economist and former president of the Central Reserve Bank of El Salvador, Carlos Acevedo, the use of cryptocurrencies carries risks and the main one is its “volatility”.

“Cryptocurrencies are too volatile and risky to perform the basic functions of money as a store of value, medium of exchange and unit of account, as economics students learn from introductory courses. “Acevedo pointed out in an opinion piece that he published in the digital newspaper El Faro.

According to President Bukele, making bitcoin legal tender in the country aims to create jobs and also to “give financial inclusion to thousands of people outside the formal economy.”

According to Bukele, “70% of the Salvadoran population does not have a bank account and works in the informal economy”.

According to the president, among some aspects that could improve with the use of bitcoin, there is the sending of funds by Salvadorians abroad.

For the sovereign the Bitcoin is “the fastest growing way to transfer” those billions of dollars in remittances and to prevent “millions of dollars” from being lost to middlemen.

In El Salvador’s dollarized economy, the remittances Salvadorians send from abroad are an important support and are equivalent to 22% of their gross domestic product (GDP).

In 2020, remittances totaled $ 5,918.6 million, an increase of 4.8% from 2019, according to official reports.

(With information from AFP)

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