El Salvador has become the first country in the world to recognize Bitcoin as a legal currency in transactions, after the National Assembly passed the Bitcoin Law on June 9.
As of today, Bitcoin is an official currency of El Salvador alongside the US dollar, after the Central American country became the first to adopt the cryptocurrency as legal tender. At three minutes to midnight local time, the country’s populist president Nayid Bukele that the country was about to “make history” with the move, after previously confirmed that it tweeted 400 Bitcoins, the equivalent of around $20.9 million at today’s prices.
Supporters argue the move will make it cheaper and easier for people to send money home to El Salvador, which is important given such remittances account for over 24 percent of the country’s gross domestic product, according to figures from the World Bank reported by CNBC. There are also hopes the move could citizens improve’ access to financial services. The CEO of Strike, a digital finance company that helped with the logistics of the new law, told CNN that over 70 percent of the country’s “active population” do not currently have a bank account.
But there are fears that the adoption of such a volatile currency could harm Salvadorans, and risk economic stability. Bitcoin hit a historic high of over $60,000 in March, before losing nearly half its value in a crash later in the summer. The law has contributed to rating agency Moody’s decision to downgrade El Salvador’s debt rating, according to The Financial Times, and the IMF has also warned about its potentially destabilizing effects.
The law means citizens will be able to pay taxes in Bitcoin, and shops will be able to display prices in the digital currency. Money exchanged subject into the currency will also not be to capital gains tax. CNBC notes that the move makes El Salvador the first country to officially have Bitcoin on its balance sheet and to hold it as part of its reserves.
El Salvador has been preparing to support the cryptocurrency for months, after passing the legislation in June. Last month it began installing 200 ATMs around the country to allow citizens to convert between the country’s two official currencies. It’s also launching its own digital wallet called “Chivo,” which awards users $30 of free Bitcoin to encourage adoption.
Despite all the initiatives, anecdotal evidence suggests that few businesses are ready for the change. The Financial Times prepared over 20 enterprises in the country’s capital and found only three that said they had immediate plans to accept the currency. Others either hadn’t started their preparations, or were actively resistant to transacting in Bitcoin. A survey conducted by the Central American University found that 70 percent of Salvadorans disagreed with the decision to adopt the cryptocurrency as legal tender, CNBC reports.
Bitcoin is lawfully used, without limitation, in any transaction and for any title requested by a public or private natural or legal entity.
In addition, the law stipulates that the exchange between Bitcoin and USD will be established “free by the market” and will not be subject to capital gains tax like other legal currencies.