Since yesterday, El Salvador has two national currencies: the traditional US dollar and the brand new Bitcoin. This Central American country was the first to adopt cryptocurrency as legal tender.
Three minutes before midnight local time on September 7, President Nayid Bukele tweeted that the country is going to “make history” with this step. At the same time, he previously confirmed that El Salvador bought 400 bitcoins, which is approximately equivalent to $ 20.9 million at the time of purchase.
– Nayib Bukele ???????? (@nayibbukele) September 7, 2021
Under the new law, El Salvador’s citizens will be able to pay taxes in bitcoin, and shops will be able to set prices in digital currency. Money exchanged for cryptocurrency will not be subject to capital gains tax. This move makes El Salvador the first country to officially have Bitcoin on its balance sheet, store and display it as part of its reserves.
El Salvador has been preparing for the entry into force of the law (passed in June) for several months. So, in August, 200 ATMs were installed throughout the country for the convenience of converting cryptocurrencies into US dollars and vice versa. El Salvador also launched its own digital wallet called Chivo, each user of which is promised $ 30 in bitcoins in order to stimulate the use of cryptocurrency and payments in it.
Proponents of including Bitcoin as a national currency say the move will make it easier and cheaper for migrants to send money back home to El Salvador. And this is important, as remittances account for over 24% of the country’s gross domestic product, according to the World Bank. It is also believed that this step will improve citizens’ access to financial services.
However, there is another opinion. There are concerns that the adoption of such a volatile currency could threaten the country’s economic stability. Suffice it to recall how Bitcoin almost halved in the summer. The law passed in El Salvador has already led to the fact that Moody’s decided to downgrade El Salvador’s credit rating. The IMF also warned of the potentially destabilizing effects of the new law.
Interestingly, the actions of the El Salvadorian authorities did not help Bitcoin itself: by the end of yesterday, its quotes fell by about 12%.