El Salvador has become the first country to formally adopt bitcoin as a legal tender at a time when other countries are busy pulling out all the stops to reel in the spread of cryptocurrencies.
The vote in congress saw 62 out of 84 lawmakers approve president Nayib Bukele’s initiative, which he tweeted would “bring financial inclusion, investment, tourism, innovation and economic development for our country.”
He also shot down concerns that adopting bitcoin as legal tender would bring any risks to users, Reuters reported.
“The government will guarantee the convertibility to the exact value in dollars at the moment of each transaction,” Bukele said.
— Asamblea Legislativa (@AsambleaSV) June 9, 2021
El Salvador officials have said that bitcoin transactions in the country would be optional and tied to the dollar exchange rate.
The president motivated the initiative by saying it would make it easier for expat El Salvadorans to send money back to their families, something the country’s economy is heavily reliant on.
The argument is similar to that made by Venezuelan president Nicolás Maduro in 2017 when he announced the petro cryptocurrency in a bid to skirt US sanctions prohibiting transactions to Venezuela.
Cryptocurrency enthusiasts among the Twitterati applauded the El Salvadorian vote to make bitcoin a legal tender.
Nigel Green, CEO and founder of financial consultancy deVere Group, predicted that many smaller countries will follow in El Salvador’s footsteps.
“Some larger, more powerful countries are trying to quash or slow the inevitable shift to borderless, global, digital currencies,” he said. “But this small Central American nation has embraced the biggest one of them all – bitcoin – and recognised it as official legal tender. El Salvador has made history and become a true pioneer of the digital age. Where El Salvador has led, we can expect other developing countries to follow.”
He argued that “low-income countries have long suffered” from having weak currencies and being “extremely vulnerable to market changes” that could trigger “rampant inflation.”
“This is why most developing countries become reliant upon major ‘first-world’ currencies, such as the US dollar, to complete transactions,” Green argued. “But reliance on another country’s currency also comes with its own set of, often very costly, problems.”
El Salvador adopting bitcoin as a legal tender has also put doubt about its quest to seek more than $1bn programme with the International Monetary Fund, Reuters wrote in a separate report.
Market analysts at Amherst Pierpoint Securities argued that the initiative demonstrated a “lack of coordination with impulsive announcement that contradict a cohesive economic plan.”