Thu | Aug 5, 2021

El Salvador first country to make bitcoin legal tender

Published:Thursday | June 10, 2021 | 12:08 AM

El Salvador’s legislative assembly has approved legislation making the cryptocurrency bitcoin legal tender in the country, the first country to do so, just days after President Nayib Bukele made the proposal at a bitcoin conference.

The digital currency can be used in any transaction and any business will have to accept payment in bitcoin, with the exception of those lacking the technology to do so. The US dollar will also continue to be El Salvador’s currency and no one will be forced to pay in bitcoin, according to the legislation approved late Tuesday.

“Every restaurant, every barber shop, every bank ... everything can be paid in US dollars or bitcoin and nobody can refuse payment,” Bukele said in an hour-long social-media hangout with thousands of United States-based bitcoiners as the bill was being debated Tuesday night in El Salvador’s congress.

The exchange rate between the two currencies will be established by the market and all prices will be able to be expressed in bitcoin – though for accounting purposes, the dollar will continue to be the currency of reference.

The government will promote training for people to be able to carry out transactions using bitcoin.

The Economy Ministry noted that 70 per cent of Salvadorans do not have access to traditional financial services and it said the country “needs to authorise the circulation of a digital currency whose value exclusively follows free market criteria” to stimulate growth.

“The bitcoin law is ambitious, but simple,” Bukele said on Twitter. “Furthermore it is well structured to have zero risk for those who do not want to take risks. The government will guarantee the convertibility to the exact value in dollars at the moment of the transaction.”

The law would create mechanisms to help Salvadoreans, especially small businesses, quickly convert payments they receive in bitcoins into dollars – helping them avoid the risk of the value plummeting, as it has in recent days

“They have to take the bitcoin, but they don’t have to take the risk,” Bukele said. “We might earn some money or we might lose some money, but it doesn’t matter. The purpose of the trust fund is not to make money but to support making bitcoin a legal tender.”

Additionally, Bukele said that anyone who invests three bitcoin in El Salvador – currently about US$105,000 – will be entitled to permanent residency.

Bukele said he would discuss his plans with the International Monetary Fund on Thursday. He denied that the move was an attempt to de-dollarise the economy.

“The objectives of having the US dollar as legal tender are replicated on steroids with bitcoin,” he said. “It’s going to help having both currencies as legal tender.”

The law will take effect 90 days after its official publication. The El Savador Central Bank and financial system regulators will publish the implementing rules in the interim.

Bukele’s New Ideas party holds a supermajority in the new congress seated May 1. On its first day it ousted the justices of the Constitutional Chamber of the Supreme Court and then replaced the attorney general, leading to concerns from the United States and others about Bukele’s concentration of power.

Other countries in the region, including Venezuela and the Bahamas, have introduced digital currencies, though none had adopted the original cryptocurrency, bitcoin, itself.

Bitcoin, intended as an alternative to government-backed money, is based largely on complex math, data-scrambling cryptography – thus the term “cryptocurrency” – lots of processing power and a distributed global ledger called the blockchain, which records all transactions. No central bank or other institution has any say in its value, which is set entirely by people trading bitcoins and which has wobbled wildly over time.

Bitcoin and other popular digital currencies, including ethereum and dogecoin, all fell sharply on Wednesday, according to the tracking site Coindesk. Bitcoin, which climbed above US$60,000 early this year, slid seven per cent to US$32,690.

The legislation established a government trust fund that will guarantee the automatic convertibility to dollars.