El Salvador became the first country in the world to adopt Bitcoin as legal tender after its Congress approved President Nayib Bukele’s proposal to adopt the cryptocurrency to promote “financial inclusion,” investment and economic development.
Bukele, a media-savvy former mayor of the capital San Salvador, who was elected president two years ago with a landslide victory, is known for his love of technology and attention-grabbing stunts.
Despite concerns that the move could complicate talks with the IMF – in which El Salvador is seeking a funding program worth more than $ 1 billion – the bilateral proposal was passed by Congress late Tuesday evening with 62 of the assembly’s 84 votes . Congress is controlled by the president’s party and his allies.
The use of cryptocurrency as legal tender – alongside the US dollar – will go into effect in 90 days and the bitcoin / dollar exchange rate will be set by the market. Salvadorans can pay their taxes in Bitcoin and “every economic actor” must accept the cryptocurrency as payment unless they do not have access to the required technology.
Bukele, 39, announced the move in a recorded message that was played at a Bitcoin conference in Miami on Saturday.
“This will create jobs and help bring financial inclusion to thousands outside of the formal economy, and we hope that this small decision can, in the medium and long term, help steer humanity at least a tiny bit in the right direction,” said Bukele.
Bukele, a former marketing executive, has suggested that Bitcoin could make it easier for Salvadorans living abroad to send the remittances home, which amounted to $ 6 billion in 2019 – a fifth of the country’s GDP.
The president – who said the new law would “bring financial inclusion, investment, tourism, innovation and economic development to our country” – had previously added the pro-cryptocurrency “laser eyes”. to his Twitter profile picture.
However, his enthusiasm is not shared everywhere.
Father José María Tojeira, director of the Human Rights Institute at the University of Central America, said very few Salvadorans had the technical means to access bitcoins.
“The decision is pretty incomprehensible. It seems more like a show – which is a characteristic of this government: a lot of propaganda but little structural changes to help the impoverished population, ”he said.
David Morales of the Cristosal human rights group described the legislation as “political marketing” and contrasted the speed of the decision with the government’s refusal to consider legislation to guarantee water rights or reform of draconian abortion laws in El Salvador.
“It was an idea that occurred to the president and became law in hours,” he said. “Such important decisions are made as part of a marketing strategy rather than a real national debate.”
Carlos Carcach, a professor at the Superior School of Economics and Business in El Salvador, pointed out that Bitcoin is extremely volatile, which means that investors “run the risk of getting rich and poor the next day”. However, Carcah added that while the introduction of cryptocurrency was “neither necessary nor convenient … as long as there is someone who accepts payments in Bitcoin, just as they accept dollars, there would be no problem”.
Although, according to Bukele, 70% of the people in El Salvador do not have access to traditional financial services, the use of cryptocurrency for wire transfers is patchy worldwide. Conversion of local currencies to and from Bitcoin often relies on informal brokers, prices are volatile, and buying and selling is a complex process that requires technical knowledge.
Analysts said the Central American country’s experiment was being closely followed elsewhere.
“The market will now focus on the rollout by El Salvador and whether other nations follow suit,” said Richard Galvin of crypto fund Digital Asset Capital Management. “This could be an important catalyst for Bitcoin in the next two to three years.”
Bukele made headlines around the world in February last year when he marched into Congress in riot gear and called on MPs to approve a loan for new safety equipment or to be called back for another session in seven days.
The president’s concentration of power, attacks on critics and open disregard for his control of power have raised concerns about El Salvador’s path. It has a broad base of support, however, thanks in part to the failure of the country’s traditional parties that have ruled for the past 30 years to improve people’s lives – and its ability to provide short-term benefits.