El Salvador has become the first country in the world to classify Bitcoin as legal currency, after lawmakers in the Salvadoran Congress on Tuesday night (June 8) voted by a “supermajority” in favor of the Bitcoin Law, receiving 62 out of 84 of the legislature’s vote.
The legislation will make the world’s most popular cryptocurrency recognized by law as a means to settle a public or private debt, or meet a financial obligation. It doesn’t automatically mean that a person or business is required to accept the currency as payment for goods or services.
The price of the digital asset was up 5% to $34,239.17 shortly after the vote.
“The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out,” the law reads.
Bitcoin, up over 230% over the last 12 months, will become legal tender, alongside El Salvador’s official currency, the US dollar in 90 days.
The government will “promote the necessary training and mechanisms so that the population can access bitcoin transactions.” Since approximately 70% of Salvadorans do not have bank accounts, the cryptocurrency is seen as a way to increase financial inclusion.
President Nayib Bukele, 39, also sees the move as a way of encouraging foreign investment in El Salvador, a low-income country that relies on remittances from nationals abroad. During a Bitcoin conference on Saturday, he said that if just 1% of the world’s Bitcoin were to be invested in the country, “that would increase our GDP by 25%.” Last year, remittances to El Salvador- where four out of 10 people live in poverty- totaled $5.9 billion, according to official reports.
Some financial and legal observers and crypto devotees described the new legislation as a game changer saying the digital currencies represent the economy of the future.
Others were more skeptical raising concerns about the famously volatile digital currency which has seen large fluctuations in value over the years.
Experts have also said the latest developments could complicate talks with the IMF, where El Salvador is seeking a more than $1bn programme.
Minority opposition parties, which had criticized the speed of the vote, refused to back the legislation, AFP reported.
The Wall Street Journal wrote that it isn’t clear how practical it will be for El Salvador to adapt its economy to bitcoin.
— Gobierno de El Salvador 🇸🇻 (@Gobierno_SV) June 9, 2021
Crypto assets have soared in popularity recently due to rising interest from institutional investors and large companies. That rise has been also attributed to another factor: wild price fluctuations present opportunities for greater profits than investing on the traditional world stock markets.
However, prices can shift quickly based on sentiment. Elon Musk’s tweets or others triggers, such as China’s recent warning on cryptocurrency can sent the market in a tailspin.
Bitcoin crashed by more than half its value earlier this year after rocketing to a record high above $60,000.
Could bitcoin, dogecoin, ether and other cryptocurrencies ever replace fiat currency in day-to-day transactions? Only time will tell.
El Salvador on Tuesday (Sept. 7) became the first country to adopt Bitcoin as legal tender with businesses being obliged where possible to accept the digital coin as payment. President Nayib Bukele said using bitcoin will help Salvadorans save $400 million a year on commissions for remittances. The country now holds 400 bitcoins, which are worth nearly $21 million at current trading levels. Some citizens have embraced the technology, while others are wary and prefer cash.
El Salvador At a Glance
Total Area: 21,041 km2
Population: 6,420,746 (2018 est.)
Capital: San Salvador
Currency: United States dollar (USD) since 2001, Bitcoin (BTC, XBT, since 2021)
GDP Annual Growth Rate: -2.1% (Q4 2020)
Projected Real GDP (% Change) : 4.2% (2021)
Unemployment: 9.4% (2020)
Inflation: 2.79% (April 2021)
Projected Consumer Prices (% Change): 1.1% (2021)