Culture

In a global first, El Salvador votes yes on bitcoin as legal tender

The country hopes cryptocurrency will make its economy stronger and much more accessible.

CHILTUIPAN, LA LIBERTAD, EL SALVADOR - 2021/06/07: A man seen at a store that accepts bitcoin while holding a cellphone with an application to receive Bitcoin.
Salvadoran President Nayib Bukele has announced that he will propose a law to the Congress, where his party controls a majority, for Bitcoin to become legal tender. El Salvador would become the first country in the world to accept a cryptocurrency as a legal tender. (Photo by Camilo Freedman/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket/Getty Images

Early Wednesday morning, the legislature of El Salvador voted in favor of accepting bitcoin as official legal tender — the first country to do so anywhere in the world. The vote was overwhelmingly positive, with 62 out of 84 legislature members voting in favor of the bill posed by President Nayib Bukele.

“The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out,” the legislation states.

Bukele has been vocal in his support for cryptocurrency writ large for a long while now, touting it most prominently as a method by which Salvadorans living abroad would be able to easily send remittances back home. Right now more than 70 percent of Salvadorans don’t have bank accounts — Bukele sees bitcoin as a means by which money will more easily flow in and out of the country.

It’s difficult to overstate how monumental this is for the decentralized cryptocurrency market, which has for many years been scoffed at by government entities overall. Other governments around the world will be watching El Salvador’s bitcoin rollout like hawks, and some will likely follow in the not-too-distant future.

Lightning strikes — Bukele’s main push for bitcoin as legal tender is financial inclusion for all Salvadorans. The president is working closely with a company called Strike to make bitcoin transactions effortless for Salvadorans, in the hopes of eliminating the sometimes steep learning curve associated with cryptocurrency. Strike is built on the Lightning Network, which allows for instant microtransactions across the blockchain.

El Salvador will set up a trust at the country’s government bank to “instantly convert bitcoin to U.S. dollars,” Buekele said at an event this morning. He expects the new transaction network to process up to $6 billion per year in remittances. These remittances comprise about 20 percent of the country’s GDP right now, but Bukele says that number could skyrocket with the help of bitcoin.

Volatility as a norm — Bitcoin is not stable. This is a currency that dips and rises any time Elon Musk tweets about it. Many business analysts rebuke its existence entirely.

That inherent volatility will now be part of El Salvador’s economy. Salvadorans who opt into using bitcoin will need to navigate the many ups and downs of bitcoin; the government will need to be steadfast in educating the public about how best to protect its assets.

All businesses in El Salvador will be required to accept bitcoin, Bukele says, but the government will “act as a backstop” for those entities unwilling to deal with bitcoin’s volatility. The details of that program have yet to be determined; the government is expected to discuss details with the International Monetary Fund in the next few days.

Bitcoin will be official legal tender in 90 days, with its bitcoin-dollar rate entirely set by the market. The economical and ecological impacts of that decision remain to be seen. If the pieces fall into place just right, we’d expect to see other countries considering similar moves very soon.

Disclosure: The author of this article holds a small amount of bitcoin.