World first move by President Nayib Bukele, after Bitcoin is passed as a legal tender in the South American country of El Salvador
The South American country of El Salvador has become the first country in the world to accept Bitcoin as legal tender.
The move happened after that country’s legislator approved President Nayib Bukele’s proposal to embrace the cryptocurrency.
The move was driven by President Bukele, who some regard as a controversial figure after his administration and officials faced accusations of alleged corruption and graft.
In May for example, the United States reportedly named five of Bukele’s ministers and aides as being corrupt and diverted foreign aid funds away from the country’s government institutions, instead to local civil society groups.
It should be noted that President Bukele had introduced the bill to the Legislative Assembly last week on 5 June.
On Wednesday the Legislative Assembly of El Salvador voted to pass a bill that declared Bitcoin, the world’s largest cryptocurrency by market capitalisation, as legal tender.
It reportedly secured 62 out of 84 votes.
The populist President Bukele had championed the move as a way to help low income countries like El Salvador move from a largely cash economy, to a digital economy, where a person’s bank account is essentially their smartphone.
It should be noted that roughly 70 percent of people in El Salvador do not have bank accounts or credit cards. The country replaced its its local currency, the colón, with the US dollar in 2001.
Historically the country had a mostly agriculture-based economy, but it has been riven chronic political and economic instability including coups. It continues to struggle with high rates of poverty, inequality, and gang-related violent crime.
Nowadays remittances account for more than 20 percent of El Salvador’s GDP, and incumbent services can charge 10 percent or more in fees for international transfers that take days to arrive and must be collected from a physical location.
So it is easy to see why the country opted to adopt the cryptocurrency.
Not the last
But the move is significant and the CEO of a financial advisory and fintech organisation, believes the country will not be the last to adopt Bitcoin.
“El Salvador has become the first country to adopt Bitcoin as official legal tender – but it will not be the last,” said Nigel Green, chief executive and founder of deVere Group. “Some larger, more powerful countries are trying to quash or slow the inevitable shift to borderless, global, digital currencies.
“But this small Central American nation has embraced the biggest one of them all – Bitcoin – and recognised it as official legal tender,” said Green. “El Salvador has made history and become a true pioneer of the digital age.”
“Where El Salvador has led, we can expect other developing countries to follow,” predicted Green. “This is because low-income countries have long suffered because their currencies are weak and extremely vulnerable to market changes and that triggers rampant inflation.”
“This is why most developing countries become reliant upon major ‘first-world’ currencies, such as the US dollar, to complete transactions,” said Green. “But reliance on another country’s currency also comes with its own set of, often very costly, problems.”
“A stronger US dollar, for example, will weigh on emerging-market economic prospects, since developing countries have taken on so much dollar-denominated debt in the past decades,” said Green. “By adopting a сryptocurrency as legal tender these countries then immediately have a currency that isn’t influenced by market conditions within their own economy, nor directly from just one other country’s economy.”
“Bitcoin operates on a global scale and is, as such, largely impacted by wider, global economic changes,” Green added. “In addition, cryptocurrencies could also help bolster financial inclusion for individuals and businesses in developing countries as they can circumnavigate the biases of traditional banks and other financial services providers.”
“There will no doubt be critics – probably those based in wealthy countries – who will knock this bold move by El Salvador,” Green concluded. “But I believe we should welcome the forward-thinking approach to solving complex issues.”
Green’s comment about cryptocurrency critics is salient, considering the concern with which it is viewed by senior officials in developed nations.
Last month for example the governor of the Bank of England (BoE), Andrew Bailey, said cryptocurrencies “have no intrinsic value” and people should only buy cryptocurrencies if they are prepared to lose all their money.
BoE governor Bailey then one step further and said cryptocurrencies and similar assets were a danger to the public.
“Crypto-assets,” as the central bank’s official labels bitcoin and the rest, present a danger to the public, Bailey told the British Parliament’s Treasury Committee.
It should be remembered that the Bank of England in September 2014 had warned that Bitcoin could pose a threat to financial stability in the UK should it see widespread adoption.
Bailey’s comments come amid wild fluctuations for Bitcoin and other cryptocurrencies, that has seen the digital currency value rise, fall, rise again to record highs, before crashing back down again following comments from well known figures such as Elon Musk, and new restrictions in China.
That said, the Bank of England and HM Treasury confirmed in April that the Chancellor, Rishi Sunak had asked them to look at the case for a new “Britcoin”, or central bank-backed digital currency.
A taskforce has been created to look into this possibility.