Nayib Bukkele’s government had announced the move in June, and now it has been signed into law. El Salvador is the first country to accept Bitcoin as legal currency, and it is now official along with the US dollar.
Today, El Salvador, a small country in Central America, woke up with a new co-official currency. In a radical monetary exercise, El Salvador’s government announced late Monday that Bitcoin would become legal tender in the small economy starting Tuesday. However, the population remains divided, as experts say the move could be very risky to such a fragile economy.
Ahead of the move, the government has purchased a further 200 bitcoin, totaling 400 bitcoin in the country’s treasury; An equivalent of around $21 million.
The law declaring Bitcoin official says all economic agents shall accept Bitcoin as payment and that taxes may be paid using the cryptocurrency. For this purpose, the government has created an app called ‘Chivo Wallet’ in which it will give the population $30 worth of bitcoin in order to promote its use.
The population remains divided on the issue. Some social organizations fear the volatility of BTC may cause economic mayhem and thus have asked for the law’s repeal. The IMF, now one of the country’s biggest creditors, has the same fears. In a statement, Kristalina Georgieva, managing director of the IMF, said that calculating tax income with the volatility of Bitcoin is near impossible. Thus the move makes the country a riskier bet than ever before.
Although using Bitcoin may help citizens in smaller towns in the country who do not have bank accounts access financing, there remains a doubt about how this will fare in the future. The Salvadoran economy was already in turmoil as in July, Moody’s investor service moved the country’s credit score to extremely risky, citing fears of payment defaults starting in 2023.
The government expects to attract more foreign investment and shakes off the fears of instability from the cryptocurrency’s volatility. However, as the US Dollar remains official, it is unknown if the population will adapt to the use of BTC on everyday purchases.
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