Image courtesy: India today
El Salvador now has Bitcoin as an official currency alongside the US dollar, after becoming the first Central American country to accept the cryptocurrency as legal cash. At three minutes to midnight local time, the nation’s populist president Nayid Bukele tweeted that the country was going to “create history” with the action, after earlier announcing that it had acquired 400 Bitcoins, the equivalent of almost $20.9 million at current rates.
Supporters claim that the move would make it cheaper and simpler for migrants to send money home to El Salvador, which is essential considering that such remittances account for more than 24 percent of the country’s GDP, according to World Bank data published by CNBC. There is also hope that the move will increase citizens’ access to financial services. According to the CEO of Strike, a digital financial business that assisted with the new law’s logistics, more than 70% of the country’s “active population” does not presently have a bank account.
However, there are concerns that adopting such a historically volatile currency may hurt Salvadorans and jeopardise economic stability. Bitcoin reached an all-time high of over $60,000 in April before plummeting by nearly half in a late-summer collapse. According to The Financial Times, the bill led to Moody’s decision to lower El Salvador’s debt rating, and the IMF has also cautioned about its possibly disruptive implications.
Citizens will be allowed to pay taxes in Bitcoin under the new law, and retailers will be permitted to advertise pricing in the digital currency. Money converted into the currency will also be exempt from capital gains tax. According to CNBC, El Salvador is the first government to legally put Bitcoin on its balance sheet and retain it as part of its reserves.
After adopting legislation in June, El Salvador has been planning to embrace cryptocurrencies for months. It began deploying 200 ATMs around the country last month to allow residents to change between the country’s two recognised currencies. It is also introducing its own digital wallet dubbed “Chivo,” which will provide customers with $30 in free Bitcoin to encourage adoption.
Regardless of the measures, anecdotal data shows that few firms are prepared for the transition. According to the Financial Times, just three businesses in the country’s capital have immediate intentions to accept the money. Others had either not begun their preparations or were openly opposed to trading in Bitcoin. According to CNBC, a poll done by Central American University revealed that 70% of Salvadorans disagreed with the move to make cryptocurrencies legal tender.