El Salvador became the first country to accept Bitcoin as legal tender

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El Salvador will accept Bitcoin as legal tender in the country, becoming the first in the world to officially adopt the volatile currency. cryptocurrency as such.

The Latin American nation’s Congress overwhelmingly voted in favor of the law late Tuesday night, pushing forward a proposal by President Salvador Naib Bukele. sentence… The 39-year-old politician’s party has an overwhelming majority in El Salvador’s congress.

“This will bring financial inclusion, investment, tourism, innovation and economic development to our country,” Bukele said. said before vote.

According to experts, the move also carries financial risks for ordinary Salvadorans and their country, as cryptocurrency gains and loses huge amounts in the blink of an eye, and sometimes in the blink of an eye.

The US dollar is the country’s official currency, and El Salvador’s economy relies heavily on money sent from abroad. In accordance with World Bank datathese so-called remittances to the country amounted to nearly $ 6 billion, or nearly 20% of its gross domestic product in 2019.

On Sunday, Bukele tweeted that “huge piece” of this $ 6 billion, intermediaries are lost, who receive a portion of the financial transactions in dollars. Instead, he believes that Bitcoin may be “the fastest growing way of transferring $ 6 billion a year in remittances.” According to the president, 70% of El Salvador’s population does not have access to traditional financial services. Bukele said Bitcoin could improve financial inclusion and access to wealth in a desperately poor country.

How it works?

Bitcoin, as legal tender, can be used in any transaction and companies will have to accept this form of payment, according to legislation… The law also states that tax contributions can be paid through bitcoins and cryptocurrency exchanges will not be subject to capital gains tax.

Under the new law, El Salvador will “promote the necessary training and mechanisms so that the population can access bitcoin transactions.” However, those without access to technology that can process bitcoin are excluded from the obligation to accept it as payment.

Bitcoin can be used as legal tender when the law goes into effect in 90 days. The bitcoin-dollar exchange rate will be set by the market.

Impact of the first country to adopt Bitcoin

Becoming the first El Salvador to have Bitcoin as legal tender could be a sign that cryptocurrency is coming. Greg King, CEO and founder of Osprey Funds, a cryptoasset management firm, told CBS News that using bitcoin as legal tender is “a big deal.”

“I think this is an important milestone for Bitcoin and a very positive development,” he said. It remains to be seen how much the adoption will be accepted by their citizens. But on a qualitative level, what it does for Bitcoin further legitimizes its status as a potential reserve asset for sovereign and super-sovereign organizations. ”

Meanwhile, El Salvador is one of poorest countries in the region, and Bukele is looking for a $ 1 billion program with the International Monetary Fund.

Siobhan Morden, managing director and head of Latin America fixed income strategy at Amherst Pierpont Securities, told CBS News that it is “very early” to assess the implications of Bitcoin. as legal tender in El Salvador and how it will work.

“It was a very sudden announcement,” she said. “It was promoted pretty quickly. And so it really raises concerns about how effectively it will be done and what the implications are for the country, especially in terms of its relationship with its diplomatic and multilateral relations. ”

According to Morden, El Salvador fears not only sharp fluctuations in the value of bitcoins for ordinary people, but also that this could delay ongoing negotiations with the IMF.

“El Salvador is a dollarized economy and has limited access to financing its fiscal deficit for its funding programs. And it has indeed reached saturation levels in terms of output in its own local markets, ”she said. Thus, its ability to access credit depends on reaching an agreement with the IMF, which can facilitate access to multinational credit.

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