It looks as if bitcoin is set to pick up steam with the recent announcement that El Salvador is set to become the first country to recognize bitcoin as legal tender as it is starting to make more economic sense.
Moving with the times
El Salvador’s President Nayib Bukele recently proposed the move which has since been approved by Congress. 62 out of the 84 possible lawmakers voted in favor to pass a law that will see the country start accepting bitcoin. This was brought about recently by Bukele who intended for bitcoin to help the people of El Salvador who are living overseas to remit money back to the country.
Pushing the economy forward
Bukele said that the US Dollar will still be its main currency as it has been but with bitcoin, it would provide better financial inclusion for all its industries including tourism, investment and development of its economy. There were concerns with this move however on how it could impact its program with the IMF (International Monetary Fund) which is said to amount to nearly US$1 billion.
BANDESAL, the country’s development bank will be tasked to guarantee convertibility to US dollars. The bitcoin-dollar exchange rate will be set by the current market movements and would most likely start becoming legal tender around the end of Q3 2021. This could mean that:
- Firms are under law to accept payments in bitcoin
- Bitcoin can be used to pay tax contributions
Analysts have been upbeat but cautious on the move because the markets will be looking at how El Salvador could implement the move. It is interesting to see if other nations will follow since there have been some that have banned certain cryptos like in China. Should more nations follow the move, it could impact and change the world in the next few years.
What makes remittances so significant is that El Salvador’s economy has been relying heavily on money sent back from overseas. In 2019, remittances make up about 1/5 of the country’s GDP. With bitcoin, it should make this process easier and faster without needing to use intermediaries.