A scoop for a small Central American nation is worldwide news. In El Salvador, it will be possible to pay everything in bitcoin very soon. On June 9, 39-year-old President Nayib Bukele sent a bill to parliament to make bitcoin legal tender. The bill was passed by most. The Central American country is now the first country in the world to make Bitcoin legal tender.
The new law is good news for the country’s residents. And the eyes of the world will surely be on this development once this new law is put into practice within 90 days. Bitcoin fans are happy, because they see it as a big step towards a world where everyone can pay with digital currency. There are still many questions about how this will work in practice.
The country’s current currency, the US dollar, will also remain in effect, but soon everyone’s local greengrocers and supermarkets will also have to accept payments in bitcoin, as will government agencies such as tax authorities. The 90-day period is meant to prepare the country for the transition.
El Salvador is a very poor country, 70 percent of the population has no access to traditional payment services. As long as people have an internet connection, this will soon change. The state is also setting up courses for citizens who think the crypto world is too complicated. The government feels that digital skills should not be a reason to be excluded.
Many El Salvadorans get their money in the United States. A portion of their income is sent to relatives in their home country every month. The transfer is not free, because there is always a commission to be paid. Overseas workers have always seen some of their hard-earned money disappear into the pockets of the American banks that facilitate their transactions. With bitcoin, there are no commissions, as the cryptocurrency is decentralized, without bank intervention.
But can a coin whose value can go down or up 20 percent in one day really work as a payment method? A bitcoin is now worth half its April record value (over $60,000 then, compared to around $29,595 today). This means retailers who are paid their turnover in bitcoins, have to sell double in the event of a price drop in order not to suffer financially. President Bukele recognized the risk. The national development bank kept $150 million in a special account to absorb exchange rate risk. The Bukele government also guarantees that anyone can immediately exchange bitcoins for dollars if they wish. El Salvador is also negotiating a $1.3 billion bailout package to ease the burden on its budget deficit and debt with the International Monetary Fund (IMF).