Bitcoin

In a world first, El Salvador makes bitcoin legal tender | Reuters

san salvador, june 9 (reuters) – el salvador became the first country in the world to adopt bitcoin as legal tender after congress approved on wednesday president nayib bukele’s proposal to adopt the cryptocurrency, a move that delighted supporters of the coin.

With 62 of 84 possible votes, legislators voted in favor of the initiative to create a law to adopt bitcoin, despite concerns about the possible impact on El Salvador’s program with the International Monetary Fund.

Reading: Bitcoin 47k el salvador chivochatterjeereuters

bukele has promoted the use of bitcoin for its potential to help salvadorans living abroad send remittances home, while saying that the us. the dollar will also continue as legal tender. In practice, El Salvador does not have its own currency.

“It will bring financial inclusion, investment, tourism, innovation and economic development to our country,” Bukele said in a tweet shortly before the vote in Congress, which is controlled by his party and allies.

In an idea that seemed to have developed overnight, bukele later said he had instructed state geothermal power company lageo to develop a plan to offer bitcoin mining facilities using renewable energy from volcanoes. from the country. read more

said the idea was to build a bitcoin mining center around the country’s geothermal potential. He also said that El Salvador would offer citizenship to people who show evidence of having invested in at least three bitcoins.

the use of bitcoin will be optional for people and will not bring risks to users, said bukele, and the government will guarantee the convertibility to dollars at the time of the transaction through a $150 million trust created in the development bank of the country, bandesal.

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By law, businesses must accept bitcoin when offered as payment for goods and services. tax contributions can also be paid in cryptocurrency.

“if you go to a mcdonald’s or whatever, they can’t say we’re not going to take your bitcoin, they have to take it by law because it’s legal tender,” said bukele in an online conversation with crypto -figures of the foreign exchange industry in parallel to the debate in the congress.

Its use as legal tender will begin in 90 days, with the bitcoin-dollar exchange rate set by the market. bukele said that the government and central bank currently did not hold any bitcoin.

In the capital, San Salvador, reactions were mixed, with some excited that the new currency could increase prosperity and financial options. others were skeptical.

“How am I going to agree with this? I haven’t even seen it in photos. I don’t know anything about it, you have to understand your currency,” said Estela Gavidia, grabbing shopping bags and recalling the loss of purchases. power that many poor people suffered when the dollar was adopted in 2001.

See also: EU vote on Bitcoin mining: What does it mean for the industry?

Cryptocurrency supporters hailed the move as legitimizing the emerging asset, but its impact on regulation, taxation, or adoption of bitcoin in other countries remains to be seen.

There were no immediate signs that other countries would follow El Salvador’s adoption of bitcoin.

“Whether this becomes the first thing that becomes a trend and then it snowballs, or whether this will be a problem, we will only know through history,” said brandon thomas, partner of the consulting firm grayline group.

Analysts have also said that the measure could complicate negotiations with the IMF, where El Salvador is seeking a program of more than $1 billion. read more

Bukele said he will meet with the IMF on Thursday to discuss bitcoin law, among other issues. he said that in organizing the meeting he had tried to explain to them that the change “was not going to change our macroeconomics.”

Bitcoin enjoyed its best day in two weeks, rising as much as 6% to $35,200.

“The market will now focus on adoption across El Salvador and whether other nations will follow,” said Richard Galvin of Crypto Fund Digital Asset Capital Management. “This could be a key catalyst for bitcoin in the next two to three years.”

inspiration on the beach

It was not immediately clear how long Bukele had been working on the bitcoin plan, but he said Wednesday that he was inspired by a project called bitcoin beach that introduced the cryptocurrency to a coastal town in El Salvador last year.

worked on the idea with jack mallers, CEO of strike, a digital wallet that uses the lightning network to enable small payments in bitcoin.

bukele has also pointed to a tweet of his from 2017, before he was a presidential candidate, in which he suggested using bitcoin.

Emerging economies, where banking penetration is much lower than in developed countries and reliance on money transfers from abroad is much higher, have quickly adapted to cryptocurrencies.

See also: Vanguard and Bitcoin | Can You Buy Bitcoin on Vanguard? | BitIRA®

Outside the United States, the countries with the largest volumes of cryptocurrency production and trade are developing countries, according to bofa, including China, Colombia and India.

Bukele says that about 70% of people in El Salvador lack access to traditional financial services.

But the use of digital currencies in general can also present risks for dollarized economies, analysts say.

“The root cause of dollarization is high local inflation, which could also worsen if digital currencies turn out to be inflationary,” said david hauner in bofa.

el salvador relies heavily on the money returned by workers abroad. World Bank data showed that remittances to the country accounted for almost $6 billion or about a fifth of GDP in 2019, one of the highest proportions in the world.

Cryptocurrency offers, in theory, a fast and cheap way to send money across borders without relying on remittance companies normally used for these types of transactions. it is unclear what proportion of remittances sent to el salvador are in bitcoin.

conversion of local currencies to and from bitcoin often relies on informal brokers, while trading often requires technical knowledge.

el salvador will promote training and mechanisms to allow access to bitcoin transactions, states the law.

Financial regulators and lawmakers warn that bitcoin facilitates money laundering and other illicit uses.

bukele played down fears, saying criminals already use u.s. dollars and other assets to launder money.

“The problem is not the dollar, it is the criminals,” he said.

Our Standards: The Thomson Reuters Trust Principles.

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