President Nayib Bukele’s government in El Salvador has passed a law in June and accordingly adopted the popular cryptocurrency Bitcoin as legal tender from September 7 onwards, alongside the US dollar.
Bitcoin, while accepted in many countries by individuals and even companies, is nowhere backed by the federal government as a legal tender. This is the first such instance.
El Salvador does not have a currency of its own. The country scrapped its currency ‘colons’ and adopted the US dollar in 2001.
Billions of dollars flow into El Salvador as remittances from those working in the US. Some news reports have seen the latest developments in El Salvador as a means to simply avoid the remittance fee from all those transactions.
Mr. Bukele’s government had set up ATMs across the country to withdraw dollars in exchange for the Bitcoins stored online. The country has also developed a digital wallet titled ‘Chivo,’ meaning ‘cool.’
El Salvador has set up a fund to ‘stabilize’ the ever-volatile bitcoin. That is, if someone were to buy an article and the bitcoin price changes before the transaction is complete, the transaction would still be honored with the prior agreed price.
An estimated 70 percent of the country’s population does not have access to basic banking. President Nayib Bukele’s chosen means to provide financial inclusivity has raised eyebrows owing to the fears over the misuse of cryptocurrency to conduct illegal transactions.
The new law also allows foreigners to invest 3 bitcoins in the country to secure a permanent residence.