El Salvador adopts bitcoin as legal tender to spur ‘financial inclusion’
El Salvador has become the first country to adopt bitcoin as legal tender after its congress approved President Nayib Bukele’s proposal to embrace the cryptocurrency in an attempt to promote “financial inclusion” and economic development.
Despite concerns the move could complicate talks with the International Monetary Fund (IMF) – where El Salvador is seeking a financing programme worth more than $1bn (£820m) – the proposal was passed by congress late on Tuesday with 62 of the assembly’s 84 votes. The congress is controlled by the president’s conservative Grand Alliance for National Unity party and his allies.
The cryptocurrency’s use as legal tender – alongside the US dollar – will go into law in 90 days and the bitcoin/ dollar exchange rate will be set by the market. Salvadorans will be able to pay their taxes in bitcoin and “every economic agent” will be required to accept the cryptocurrency as payment unless they lack access to the necessary technology.
Bukele, 39, had announced the move in a recorded message played at a bitcoin conference in Miami on Saturday. “Next week I will send a bill to congress that will make Bitcoin a legal tender in El Salvador,” Bukele said. “In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy, and in the medium and long term we hope that this small decision can help us push humanity at least a tiny bit into the right direction.”
Bukele has suggested bitcoin could make it easier from Salvadorans living abroad to send home emittances that amounted to $6bn in 2019 – a fifth of the country’s GDP. The president said the new law would “bring financial inclusion, investment, tourism, innovation and economic development for our country”.
His enthusiasm, however, is not universally shared. Carlos Carcach, a professor at El Salvador’s Superior School of Economics and Business, pointed out that bitcoin was extremely volatile, meaning investors “run the risk of becoming rich and being poor the next day”.
‘This will bring help to thousands outside the formal economy’
Nayib Bukele President of El Salvador