MyFinancialTimes is a reader-centric site. We may receive compensation from the products and services we mention or recommend in this story, but the opinions are the author's own. Remuneration may impact where offers appear. We may not include all available products or offerings. To learn more you can visit our advertising policy and editorial policy.
El Salvador president, Nayib Bukele, announced that its Congress officially passed the Bitcoin Law, which will instate Bitcoin as legal tender. The cryptocurrency saw a rapid rise after the news hit headlines, climbing above $36,000.
The steep increase followed the coin’s 1-week low of $31,000 on Wednesday afternoon, seeing a dramatic rise after the bill passed at 2:00 p.m. ET. El Salvador’s law marks it as the world’s first county to adopt Bitcoin as legal currency after 62 of 84 possible votes were in favor of the President’s bill.
The country’s lawmakers decided in the supermajority that it would allow its citizens to properly trade the currency. The law will allow El Salvador’s government “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,” according to the law.
All commercial prices in the country can be presented in Bitcoin, and tax contributions can be paid with the cryptocurrency. There will also be no capital gains tax for exchanges in Bitcoin. The move by the country is shocking, especially since many believe the volatility of the coin makes it an unstable currency.
Despite the evidence that Bitcoin’s price is likely to continue to rise and fall, El Salvador is confident in the capabilities of the digital coin to revolutionize its economy, bringing accessible currency to its population. In the law, Nayib Bukele added that “the exchange rate between Bitcoin and the United States dollar, subsequently USD, will be freely established by the market.”
The market is constantly evolving. Despite the cryptocurrency’s all-time high of $64,000 last month, the coin fell nearly half, according to Coin Desk, and has hovered around the $35,000 mark for a while. Bitcoin is still up 230 percent in the last 12 months, and there is no telling just how far up or down the price will go.
The benefits outweigh the caveats for El Salvador, as presented in the Bitcoin Law. Around 70 percent of El Salvador’s population has no access to traditional financial services, and Bitcoin, among other cryptocurrencies, is seen as a way to increase financial inclusion. The law states that Bitcoin will “promote the necessary training and mechanisms so that the population can access bitcoin transactions.”
The process of adding Bitcoin to El Salvador’s official currency (joining the US dollar) is part of a larger plan by the President to build the country’s modern financial infrastructure. The official adoption of Bitcoin was labeled the “shot heard ‘round the world” by Jack Mallers, the founder and CEO of Strike.
Though the passing of the law was striking, El Salvador’s president is a known Bitcoin enthusiast, and it was no surprise that he was eager to have the bill pass. Last week, Nayib Bukele changed his Twitter profile to a picture in which he has laser eyes, a symbol known among social media users as a sign of crypto-support.
One of the biggest ways Bitcoin is set to evolve El Salvador’s economy is by instant monetary transfers. Last year, El Salvador citizens living in the United States sent home more than $6 billion in remittances.
As nearly a quarter of El Salvador’s population lives abroad, it’s imperative for the advancement of the economy for a system of instant transfers and Bitcoin is “the fastest growing way to transfer six billion dollars a year in remittances,” according to the President. A hefty chunk of the remittances are lost to intermediaries and other middleman fees, and incorporating Bitcoin could help support millions of poor families.
In its support for Bitcoin, the government will also give “immediate permanent residence to crypto entrepreneurs.” The announcement has sparked several Bitcoin investors to publicly consider such a move via Twitter.