El Salvador has become the first country to legally bid for bitcoin, which President Najib Bukil hailed as a historic step toward financial inclusion and economic growth for the impoverished Central American nation.
The country’s legislature, which Bukele controls, passed the bill with a majority of 62 out of 84 likely votes on Wednesday. “Date!The 39-year-old authoritarian president wrote on Twitter.
Bitcoin entrepreneurs were pleased with the decision in a country where 70 percent of Salvadorans do not have access to traditional financial services. Analysts have been cautious given the cryptocurrency’s volatility, and some have said it could jeopardize the suspended IMF program.
“It just feels like a bad idea… In reality, El Salvador will have two currency systems operating in the country with neither of them being controlled,” said Biban Rai, a currency analyst at CIBC.
The law stipulated that “in order to promote the economic growth of the nation, it is necessary to allow the circulation of a digital currency whose value meets exclusively free market standards, in order to increase the national wealth for the benefit of the largest number of citizens of the population.”
By law, bitcoin can be used for purchases or tax payments, and bitcoin exchanges will not be subject to capital gains tax.
Some poor countries have floated cryptocurrencies as a way to end dependence on the dollar, which El Salvador offered as a legal tender in 2000.
“It has its drawbacks,” said Hugo Renodin, a crypto entrepreneur. From a monetary perspective, it depends on another currency. . . Transaction fees are quite steep for small purchases, so you may not be able to buy coffee with bitcoin – the fees will be higher than for coffee – but you can buy an apartment. “
Bitcoin was trading at $34,300, down 50 percent from its peak in April.
Salvadorans rely heavily on Transfers. Payments from family members in the US make up a fifth of GDP, according to world bank. Juan Pablo Terriott, CEO of Uphold, a financial services platform that allows payments and trading in bitcoin or other currencies and instruments, said bitcoin could make this process cheaper.
“Any country that supports bitcoin as a legal currency will have exchanges around every corner where you can enter with bitcoin on your phone, scan a QR code and move on with dollars,” he said.
“Merchants will do the same,” he added, noting that fast-food chain Burger King has already offered bitcoin payments in Venezuela, whose Bolivarian currency has been decimated by the economic collapse.
Venezuela in 2018 revealed plans for an oil-backed cryptocurrency, The Petro, in an attempt to circumvent US sanctions, but it was unsuccessful.
Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities, said it aligns with Bukele’s “propensity for flashy and unexpected announcements that seem to contradict or at least question the plan from the economic team.” She added that this could jeopardize the IMF program, which has been in the works for more than a year.
“President Bukele is not compliant, with an active Twitter account and hostile approach indicating a high degree of uncertainty about the conduct of policy,” she wrote in a note to clients. Bitcoin plans under scope increasingly authoritarian regime It will likely only exacerbate concerns about corruption, money laundering, and the independence of regulators.”
The government will set up a trust fund at the Development Bank of El Salvador to enable automatic conversion of bitcoin into dollars. The law enters into force 90 days after its publication in the Official Gazette.
Additional reporting by Katie Martin in London