Bitcoin rises 12% after El Salvador adopted it as legal tender

The price of Bitcoin Advances 12%, Comes Into $ 35,000 Range this Wednesday, after Salvadoran Congress approved the most widely accepted cryptocurrency to be legal tender in 90 days.

In this way, El Salvador became the first country in the world to adopt Bitcoin officially after Congress approved a President’s proposal Here is a preview to do it.

With 62 out of 84 possible votes, lawmakers on Tuesday gave the green light after midnight to create the law and use Bitcoin, despite concerns about it. potential impact on El Salvador’s program with the Fund International Monetary.

Bukele promoted the use of cryptocurrency for its potential to help Salvadorans living abroad send funds to their country, while ensuring that the US dollar will also continue to be legal tender.

The president, who sent the initiative to lawmakers, said this law will help create jobs in the short term and promote financial inclusion thousands of people who are outside the formal economy.

The approved rule establishes that all prices can be expressed in Bitcoin and that all tax contributions can be paid in cryptocurrency, but that for accounting purposes the dollar will be kept as the base currency.

Due to the new regulations, El Salvador will be the first country in the world where prices and taxes can be fixed in Bitcoin

“The #LeyBitcoin is ambitious, but simple, it is also well structured so that it is risk free (…) The government will guarantee convertibility at the exact dollar value at the time of each transaction,” said Bukele Tuesday evening in his twitter account.

The use of bitcoin as legal tender in El Salvador, which traded at $ 35,216.77, according to data from Refinitiv Eikon, will take effect in 90 days, with the bitcoin-to-dollar exchange rate set by the market.

Analysts said the move could complicate talks with the International Monetary Fund (IMF), where the Central American nation is seeking a program worth more than $ 1 billion.

President Bukele assured that the law will help generate short-term jobs and promote financial inclusion

“The market will now focus on adoption via El Salvador and whether other countries will follow,” he said. Reuters Richard galvin, of the “crypto” fund Digital Asset Capital Management. “This could be a key catalyst for bitcoin for the next two to three years.”

Useful for remittances

Emerging economies, where banking penetration is much lower than in developed countries and the dependence on money transfers from abroad is much higher, They were at the forefront of the cryptocurrency boom.

Outside of the United States, the countries with the highest volumes of trade and mining activity are all developing countries, according to Bank of America (BofA), including China, Colombia, India, Kazakhstan. , Kenya, Nigeria, South Africa, Ukraine and Vietnam. .

But the use of digital currencies can also represent risks for dollarized economies, like the Salvadoran, in terms of macroeconomic and financial stability, as well as possible increase in the cost of living, added the bank.

Critics of the initiative warn that adopting Bitcoin could hamper El Salvador’s potential program with the IMF

“The root cause of dollarization is high local inflation, which could also worsen if digital currencies turn out to be inflationary,” he told Reuters David Hauner, by BofA.

World Bank data showed that remittances to El Salvador amounted to nearly $ 6 billion, or about one-fifth of GDP in 2019, one of the highest rates in the world. It was not immediately clear what proportion of remittances sent to the country are in the form of Bitcoin.

Cryptocurrency offers, in theory, a quick and inexpensive way to send money across borders without depending on money transfer companies. Bukele says that around the 70% of Salvadorans do not have access to financial services traditional.

Yet the use of cryptocurrency for global remittances is uneven. The conversion of local currencies to and from Bitcoin often relies on informal brokers. Prices are volatile and buying and selling is a complex process that requires technical knowledge.

El Salvador “will promote the training and mechanisms necessary for the population to access Bitcoin transactions”, according to the law.

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