El Salvador made history on June 9, 2021, when it became the first country to recognize bitcoin as legal cash. In Congress, President Nayib Bukele’s suggestion to use the currency was well received. The result was in favor of enacting legislation to become bitcoin the country’s official tender. The use of Salvadorans living abroad will find it much easier to transfer money home with bitcoin. This is significant because one out of every four Salvadorians lives overseas. Furthermore, remittances account for more than $2 of every $10 in the country’s economy. As a result, making bitcoin legal tender will only help El Salvador’s vulnerable communities get access to financial resources.
Bitcoin’s Advantages
The acceptance of bitcoin as legal money may be a growing trend in emerging markets. This is due to a lack of bank penetration and traditional financial institution access. More than 70% of the population in El Salvador has no access to standard banking services. Salvadorans have become so reliant on remittances as a result of these situations. Remittances accounted for a fifth of El Salvador’s overall GDP last year. With the domestic economy so reliant on remittances, it’s understandable that Bukele would propose legislation to make it easier to send money home from overseas.
Salvadorans will be able to send money to needy relatives at a cheaper and faster rate thanks to bitcoin. Remittance companies will no longer be necessary for those working in the global north. Rather, an informal broker is all that is required to change local currencies to and from bitcoin. President Bukele plans to devote major domestic resources to assisting Salvadorians in learning how to conduct bitcoin transactions. El Salvador’s commitment to cryptocurrencies will not only foretell the currency’s future relevance but will also serve as a case study for other emerging economies interested in embracing bitcoin as legal cash.
El Salvador declared Bitcoin to be legal tender for this reason.
The country’s president stated the different uses of Bitcoins. He has stated that inhabitants of Salvador living abroad will be able to send remittances back home because of the potential of Bitcoins. He went on to say that Bitcoins would help the country with financial inclusion, tourism, innovation, investment, and economic development.
El Salvador is a country that is significantly reliant on money sent back from foreign employees. Without relying on remittance companies, cryptocurrency provides a rapid and inexpensive means to move money across borders. According to World Bank data, remittances received in the country account for a fifth of the country’s GDP, which is one of the highest rates in the world.
Why is Bitcoin not legal in all countries?
Bitcoin is a decentralized cryptocurrency, meaning it has no one owner, such as a central bank or a single administrator. This means that no single country can control it. Independent states have traditionally had control over their native currencies. Adoption of a ‘foreign’ currency has long been considered a symptom of monetary instability. Nations who adopted the US dollar or linked their currency to the value of the latter, as well as countries that did not adopt the euro because it was deemed too risky for their economy.
The inability of governments to stabilize the value of unregulated or decentralized cryptocurrencies like bitcoin adds to the doubts. El Salvador’s inhabitants will suffer a huge economic problem if bitcoin crashes tomorrow and is only worth a few cents because their BTC savings will be worthless.
Reaction to the announcement that Bitcoin has been declared legal tender
When it came to designating Bitcoins as legal cash, it was discovered that there were mixed emotions in the country’s capital. Some people were enthusiastic about the new currency’s status as legal tender and the increased financial opportunities and prosperity it would bring, while others were apprehensive. Analysts have predicted that the country’s departure would present issues with the IMF, where the country has applied for a USD 1 billion loan.
What countries permit Bitcoins to be used as a legal tender?
El Salvador is now the only country that has accepted bitcoin as legal money. The majority of countries have passive legislation governing bitcoin. Bitcoin is unregulated in these countries: it is neither forbidden nor legalized as a form of payment. Although it is usually treated as an asset and hence classified as property for tax purposes. Several African countries are looking into adopting regulated cryptocurrencies (not bitcoin, but stablecoins) to improve the security of mobile money,’ but they are emphasizing the necessity for a regulatory framework to protect their users.
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