El Salvador adopts Bitcoin as Legal Tender

 

In what can be called a historical move, the nation’s legislature voted in favour of President Nayib Bukele’s proposal for the Latin American nation to adopt bitcoin. The president intends to sign later tonight or early in the morning on June 9. the recently passed law puts the asset on equal footing as the US dollar (which is the official currency of El Salvador

Sixty-two members of the legislature voted in favour of the bill, with 19 opposed and three abstentions. Bukele provided further details about his vision, pitched as an effort to boost financial inclusion in a country where a scant 30% of citizens have access to financial services, in a Twitter Space conversation early Wednesday morning hosted by Nic Carter of Castle Island Ventures and Coin Metrics. 

Users won’t necessarily have to use a government wallet, he said. The bill will mandate all businesses to accept bitcoin for goods or services, but the government will act as a backstop for entities that aren’t willing to take on the risk of a volatile cryptocurrency, he said.

A trust that the government will set up at the Development Bank of El Salvador to instantly convert bitcoin to U.S. dollars will assume merchants’ risk, he said. It will hold about $150 million in dollars in the trust fund.

“If there’s an ice cream parlour, he doesn’t really want to take the risk, he has to accept bitcoin because it’s a mandated currency but he doesn’t want to take the risk of convertibility, so he wants dollars deposited in his banking account, when he sells the ice cream, he can ask the government to exchange his bitcoin to dollars,” he said. “Of course he can do that in the markets also but he can ask the government to do it immediately.”

The Development Bank’s trust fund would sell some of the bitcoin it receives for dollars to replenish the fund.

Government officials from El Salvador will meet with the International Monetary Fund in the coming days to discuss the plan.

Bukele also indicated that the government may promote bitcoin mining. El Salvador has already been hoping to draw businesses with excess geothermal energy, and while the government isn’t specifically looking to the bitcoin mining industry to fill that need, it is one such sector that could benefit, he said.

Under the provisions of the bill:

• Goods may be priced in bitcoin
• Taxes may be paid in bitcoin
• Bitcoin transactions will not face a capital gains tax
• The U.S. dollar will remain the reference currency for the bitcoin price
• Bitcoin must be accepted as a form of payment by “every economic agent”
• The government will “provide alternatives” to enable crypto transactions.