7 September 2021
Image source, AFPP Photo,
Bitcoin is legal currency since Tuesday in El Salvador.
A “new” currency has gained legal tender for the first time in the world on Tuesday. And this is not a new type of ticket.
Since September 7, El Salvador became the first country to adopt bitcoin as a legal tender, in a move that has caused the nation and many other countries to debate the opportunities and dangers of cryptocurrencies.
As of Tuesday, Salvadoran companies and businesses are obliged, as far as possible, to accept the controversial digital currencies as a form of payment.
The acceptance of the new currency comes three months after the Legislative Assembly approved in express format the so-called Bitcoin Law, which went ahead thanks to the vote in favor of 62 of the 84 deputies that make up the Parliament, with an official majority.
To incentivize its use in a country where the majority of the population does not have access to the internet, the government is inviting Salvadorans to download a new digital wallet app that gives away $30 in bitcoins to all citizens.
El Salvador’s President Nayib Bukele announced on Twitter that his country bought the first 200 bitcoins and was working to buy more “as the deadline approached.”
The government has presented the measure as a way to boost economic development and employment and benefit those who send remittances.
However, polls suggest that Salvadorans are not prepared for this and international bodies such as the World Bank and the International Monetary Fund have warned against its adoption.
Critics say the change is more of an “attention-seeking movement” and a “distraction” from an “authoritarian regime.”
Over the weekend, El Salvador’s Constitutional Court made a questionable interpretation of the Magna Carta to approve consecutive presidential re-election, something most academics agree is not legal.
And next week, the parliament plans to discuss a constitutional reform also promoted by Bukele and that will give greater power to the Executive.
While these things happen in the real world, Salvadorans will be dealing with a new currency in the virtual world.
In BBC Mundo we offer you some keys to understand the change that occurs from this Tuesday in the Central American country.
What is bitcoin?
There are thousands of cryptocurrencies in the world, physically shapeless digital currencies that exist and are exchanged only online.
They are created when a computer “extracts” money by solving a set of complex mathematical programs.
Bitcoin is the most popular – and expensive – of them all.
In this video we tell you four keys to understanding bitcoin.
What is El Salvador’s new law?
In June, the Salvadoran Parliament approved the legalization of cryptocurrency as legal tender.
Specifically, it establishes that the use of virtual currency will be “unrestricted, with liberatory and unlimited power in any transaction and in any capacity that natural or legal public or private persons want to carry out”.
The exchange rate between bitcoin and the dollar will be set “freely by the market” and not subject to capital gains tax, just like any other legal tender.
As of this Tuesday, every economic agent must accept bitcoin as a form of payment “when it is offered by those who acquire a good or service.”
Image source, Getty ImagesPhoto clip,
Bukele has defended the use of bitcoin since 2017.
The government has pledged to create the institutional structure necessary for the circulation of the cryptocurrency and has begun the installation of some 200 ATMs where bitcoin can be converted to the dollar, although experts point out that this alone will not be enough for the change that is taking place.
Why is it a milestone?
No country in the world had dared before to declare cryptocurrencies legal tender.
In Japan, one of the world’s most advanced countries in the use of digital currencies, a legal reform in 2017 turned bitcoin into a form of payment, which some interpreted as having been granted legal tender status.
However, a report published in 2018 by the Central Bank of Japan clarified that cryptocurrencies “are not a legal tender and their use for payments depends on the willingness of the counterparty to accept them.”
Hence, it has attracted international attention that El Salvador, a small country with a modest economy, was the first to take this step, which was announced and approved in record time with hardly any debate.
The move comes at the same time that many governments around the world, such as China’s, are going in the opposite direction and trying to restrict the adoption of cryptocurrencies with greater regulations.
What are the risks?
The main criticism of the project is, without a doubt, the great volatility that characterizes bitcoin.
The cryptocurrency went from costing around $10,000 in September 2020 to a high of $63,000 in April 2021 and then fell to $30,000 in July this year. Currently around US$52,000.
It is feared that this great fluctuation could encourage speculative attacks that lead to chaos in the Salvadoran monetary system and with this, that the value of savings, pensions or wages will be affected.
To prevent the population from compromising their purchasing power, the government announced the creation of a $150 million trust at the country’s Development Bank to automatically redeem the bitcoins of Salvadorans who wish to do so.
Thus, Bukele gave as an example that if a fruit seller does not want to assume the risk of fluctuation and decides to change the bitcoins she receives with her work to dollars, this government-owned bank will buy them at the price at which she valued her fruit, regardless of whether the value changed from the time she made her sale until she deposited the cryptocurrency in the bank.
Image source, AFPP Photo,
Originally posted 2022-05-01 22:57:14.
