El Salvador authorizes bitcoin as legal tender, the first country in the world to do so

The Legislative Assembly of El Salvador approved the Bitcoin Law on Tuesday and the Central American thereby became the first country in the world to recognize cryptocurrency as a legal exchange currency.

The initiative, which went ahead thanks to the vote in favor of 62 deputies of the 84 that make up the ruling majority Parliament and will enter into force 90 days after its publication in the Official Gazette, establishes only the legal course of bitcoin and not other cryptocurrencies .

The measure did not count with the votes of 19 deputies, 14 parliamentarians from the Nationalist Republican Alliance (Arena, right), 4 from the Farabundo Martí National Liberation Front (Arena, right) and one from Deputy Johnny Wright from Nuestro Tiempo, all parties opponents.

The regulation was made known through Twitter by President Nayib Bukele , who already announced on Saturday in a video broadcast during the Bitcoin 2021 conference held in Miami that he would send said bill to the Assembly, and it was introduced to the parliamentary session without further legislative discussion.

Bitcoin 2021 Conference in Miami.
Bukele made the announcement in a video presented at the Bitcoin 2021 conference in Miami.

According to the decree, the law is aimed at regulating the bitcoin as legal tender, unlimited in any transaction and any t í title that public natural or legal persons, or require private conduct.

The law establishes that the exchange between bitcoin and the dollar will be established “freely by the market” and will not be subject to capital gains taxes like any legal tender.

And also that every agent economic Êbêra accept Bitcoin as payment “when so is offered by the purchaser of a good or service” and that the Executive Branch created the institutional structure necessary for the circulation of cryptocurrency, according to established by law.

A woman withdraws cash from a bitcoin ATM.
A woman withdraws cash from an ATM.

Criticisms and unknowns

Since Bukele announced on Saturday his intention to send the bill to the Assembly for approval, the issue has drawn criticism from those who point out that there are many unknowns to clear regarding the implementation of the plan.

That message was the one repeated by the opposition deputy Rodrigo Ávila during his speech in the plenary session of the Assembly.

He said that bitcoin is “a volatile monetary mechanism and its use generates a serious situation if the pertinent measures are not taken” and warned that bitcoin “is allowed in several countries but has not been made official as legal tender, which is it is being done here without further analysis or due discussion ”.

However, President Bukele pointed out on his Twitter that “the #LeyBitcoin is ambitious, but simple, it is also well structured so that it has 0 (zero) risk for those who do not want to take risks.”

And he noted that “the government will guarantee convertibility at the exact value in dollars at the time of each transaction.

Already in the video issued on Saturday at the Bitcoin 2021 conference, considered one of the largest meetings on cryptocurrencies, the president said that the authorization of the cryptocurrency as legal tender “in the short term will generate jobs and help provide financial inclusion for the thousands of people who are outside the formal economy ”.

And it was announced that El Salvador will partner with Strike, a digital payments company, to create a modern financial infrastructure based on bitcoin.

BItcoin
The initiative would force to adapt the financial system in El Salvador for the general use of bitcoin.

However, several experts pointed to other doubts to clear about how the plan will be executed.

Jack Mallers, founder of the Strike platform, said during the conference that the use of bitcoin can help lower transaction costs and increase financial inclusion in a country like El Salvador where a significant part of the population does not have bank accounts.

“Adopting a native digital currency as legal tender provides El Salvador with the most secure, efficient and globally integrated open payments network in the world, ” said Mallers.

BBC correspondent Will Grant said on Saturday that this was a “daring” step, noting that much of El Salvador’s economy relies on remittances from abroad and switching to a digital currency may allow families to avoid the expensive fees involved in sending money home each month.

“Anyway, it is a move that is likely to reinforce the image of bitcoin as the ‘currency of the future’ and the position of President Bukele among his supporters as an innovative” he says.

For Rohan Gray, an expert at the Digital Currency Global Initiative, Bukele is “a young president trying to capitalize on a popular image.” There is a lot of public relations behind announcing something like this , even if all the details have not been resolved, “he told the BBC.Gray warned that a country that adopts a cryptocurrency as legal tender would give considerable control” to a a network that is not stable, has no responsible actors and does not have a track record of providing the kind of price stability and liquidity that a currency is supposed to provide.

Bukele has been an advocate for the use of bitcoin since at least 2017.

After the victory obtained by his party “New Ideas”, in the legislative elections last February, the president has an absolute majority in his favor to give the green light to his proposals.

In Japan, one of the most advanced countries in the world in the use of cryptocurrencies, a legal reform in 2017 turned bitcoin into a form of payment, which some interpreted as having been granted the status of legal tender.

However, a report published in 2018 by the Central Bank of Japan clarified that cryptocurrencies such as bitcoin “are not legal tender and their use for payments depends on the willingness of the counterpart to accept them.”

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