El Salvador approves Bitcoin as legal tender

A majority of 62 out of 84 lawmakers approved the bill, which President Bukele proposed last week.

The cryptocurrency market grew to more than $2.5tn in mid-May 2020, according to the CoinMarketCap page [File:Reuters]
The cryptocurrency market grew to more than $2.5tn in mid-May 2020, according to the CoinMarketCap page [File:Reuters]

El Salvador has approved a proposal from President Nayib Bukele for a law to classify Bitcoin as legal tender, making the Central American nation the first in the world to do so.

A majority of lawmakers voted in favour of the initiative late on Tuesday to create a law that will formally embrace the cryptocurrency, despite concern about the potential effect on El Salvador’s programme with the International Monetary Fund.

“The #BitcoinLaw has just been approved by a qualified majority” in the legislative assembly, President Nayib Bukele tweeted after the vote in the assembly.

Translation: With 62 votes, the legislative plenary session approves the #LeyBitcoin [that allows] El Salvador to adopt #Bitcoin as a legal currency. #Thenewassembly continues to make history,! a tweet from the Legislative Assembly said.

Bukele has touted the use of Bitcoin for its potential to help Salvadorans living abroad send remittances back home while saying the US dollar will also continue as legal tender.

“It will bring financial inclusion, investment, tourism, innovation and economic development for our country,” Bukele said in a tweet shortly before the vote.

He added that the use of Bitcoin, whose use will be optional, would not bring risks to users. Its use as legal tender will go into law in 90 days.

“The government will guarantee the convertibility to the exact value in dollars at the moment of each transaction,” Bukele said.

El Salvador’s dollarised economy relies heavily on money sent back from citizens working abroad.

World Bank data showed remittances to the country made up nearly $6bn, about a fifth of GDP, in 2019, one of the highest ratios in the world.

Experts have said the move to Bitcoin could complicate talks with the IMF, where El Salvador is seeking a more than $1bn programme.

The IMF’s head of mission for El Salvador, Alina Carare, said late on Monday that the fund is “following the news and will have more information as we continue our consultations with the authorities.”

Carlos de Sousa, a portfolio manager at Vontobel Asset Management, said the Bitcoin push looked ill-considered with Bukele potentially shooting himself in the foot by making the raising of tax revenue more difficult.

“Cryptocurrencies are overall a very easy way to avoid taxation and a very easy way to simply avoid the authorities because it’s a completely decentralised system, you can do money laundering, you can do tax avoidance and so on,” he said.

El Salvador President Nayib Bukele has touted the use of Bitcoin for its potential to help Salvadorans living abroad to send remittances back home [File:Reuters]

A cryptocurrency is a digital form of money that can be used to pay for some transactions online.

As with “real” currencies, one, 10, or millions of Bitcoins can be owned. Unlike real currencies, cryptocurrencies only exist online and are not backed by any government or central bank.

Crypto devotees say the currencies represent the economy of the future. But ultimately, their value depends on their limited supply and the number of people who chase after them.

The cryptocurrency market grew to more than $2.5 trillion in mid-May last year, according to the CoinMarketCap page, driven by interest from increasingly serious investors from Wall Street to Silicon Valley.

But the volatility currency – currently priced at $36,127 – and its murky legal status has raised questions about whether it could ever replace fiat currency in day-to-day transactions.

Source: Al Jazeera and news agencies

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