Bitcoin becomes legal tender in El Salvador
Central American nation purchases 400 BTC
El Salvador has become the first nation in the world to adopt bitcoin as legal tender, in a move that will be closely monitored by cryptocurrency enthusiasts and critics alike.
Bitcoin becomes legal tender
From 7 September, the world’s first and most popular cryptocurrency will be recognised as “unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal personals require carrying out”.
In addition to requiring businesses to accept bitcoin, the government has offered to give every El Salvadoran citizen US$30 in bitcoin through a specialised wallet app called Chivo.
On Monday, President Nayib Bukele announced that the country had bought a total of 400 bitcoin, worth around US$20.5m at the time of writing.
The 40-year-old leader has pushed ahead with the controversial move partly out of a desire to improve financial inclusion within the Central American nation. Around 70% of El Salvador’s 6.4 million inhabitants are thought to not have access to traditional banking services.
Despite passing with a substantial legislative majority and making El Salvador stand out as a potential hub in the burgeoning cryptoasset sector, the adoption of bitcoin has been met with opposition, both domestic and international.
Hundreds of people marched in protest against the law in the capital of San Salvador last week. Some Salvadorans are thought to be anxious about the cryptocurrency's volatility and the technological pressures placed on businesses by the legislation.
The army is reported to be guarding some of the 200 Bitcoin ATMs installed by the government, in order to prevent possible arson attacks.
While El Salvador’s legislation hails bitcoin as “a digital currency whose value answers exclusively to free-market criteria," a number of leading international monetary organisations have been less enthusiastic.
In June, the World Bank refused to help the nation with the implementation of bitcoin as legal tender “given the environmental and transparency shortcomings.”
A month later, the International Monetary Fund criticised the adoption of cryptoassets as national currencies as “an inadvisable shortcut” and “a step too far”, although it recognised the ability of the underlying blockchain technology to make financial services “cheaper and more inclusive”.
The IMF argued that cryptoassets are “too volatile” and that their adoption as legal tender would potentially threaten anti-money laundering and anti-terror financing efforts, and negatively affect the environment. It also stated that “monetary policy would lose bite” as “central banks cannot set interest rates on a foreign currency.”
Dawn of a new standard?
The latter point may well be cheered by those who have argued since their inception that cryptoassets with finite supply, such as bitcoin, enable individuals to escape the inflationary tendencies of central banks.
Celebrating the recent developments in El Salvador, Saifedean Ammous, whose best-selling The Bitcoin Standard outlined the possibility of Bitcoin becoming a global monetary standard, tweeted:
By mid-morning, Bitcoin traded down by 1% at $51,267, having jumped to a four-month high of $52,954 overnight.