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El Salvador has become the first country to obtain legal tender for bitcoins, which President Nayib Bukele hailed as a historic step towards the financial inclusion and economic growth of the poor Central American nation.
On Wednesday, the country’s legislature, which Bukele controls, passed the bill with 62 out of 84 possible votes. “HistoryThe authoritarian 39-year-old president wrote on Twitter.
Bitcoin entrepreneurs were delighted with the decision in a country where 70% of Salvadorans do not have access to traditional financial services. Analysts were cautious given the volatility of cryptocurrencies and some said it could even jeopardize a pending IMF program.
“It simply came to our notice then. . . in fact, El Salvador will have TWO monetary regimes operating in the country with control over CAP, ”said Bipan Rai, a CIBC currency analyst.
The law established that “to promote the economic growth of the nation, it is necessary to authorize the circulation of a digital currency whose value meets exclusively the criteria of free market, in order to increase national wealth for the benefit of the largest number of ‘inhabitants “.
By law, bitcoin can be used for purchases or tax payments, and bitcoin exchanges will not be subject to capital gains tax.
Some poor countries have floated cryptocurrencies as a way to end the dependence on the dollar, which El Salvador acquired the legal tender in 2000.
“It has drawbacks,” said Hugo Renaudin, a cryptographic entrepreneur. “From a monetary perspective, it is based on another currency. . . and transaction fees are quite expensive for small purchases, so you may not be able to buy a coffee in bitcoin (the fees would be higher than coffee), but you could buy a flat. “
Bitcoin was trading at $ 34,300, 50% less than its April high.
Salvadorans are very confident in this remittances. Payments by family members in the U.S. account for one-fifth of gross domestic product, according to the World Bank. Bitcoin could cheapen this process, said Juan Pablo Thieriot, chief executive of Uphold, a financial services platform that allows payments and trading in bitcoin or other currencies and instruments.
“Any country that supports Bitcoin as a legal course will have exchanges in every corner so you can log in with Bitcoin on your phone, scan a QR code, and exit with dollars,” he said.
“Traders will do the same,” he added, noting that the fast food chain Burger King has already offered bitcoin payments to Venezuela, whose bolivar currency has been devastated by the economic collapse.
Venezuela in 2018 unveiled plans for an oil – backed cryptocurrency, the petro, in an attempt to evade US sanctions, but has been a failure.
Siobhan Morden, head of Latin America’s fixed-income strategy at Amherst Pierpont Securities, said he agreed with Bukele’s “tendency to flashy, unexpected announcements that seem to contradict or at least question the team’s plan. economic “. It could also jeopardize an IMF program that had been running for more than a year, he added.
“President Bukele is not a conformist, with an active Twitter account and an antagonistic approach that involves great uncertainty in policy management,” she wrote in a note to clients. “Bitcoin plans under a increasingly autocratic regime it will probably only aggravate concerns about corruption, money laundering and the independence of regulatory agencies. “
The government will establish a trust in the Development Bank of El Salvador to allow the automatic conversion of bitcoins to dollars. The law will come into force 90 days after its publication in the Official Gazette.
Additional reports from Katie Martin in London
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