In a historic first, Bitcoin has been recognized as legal tender by a government. Heralded by a pre-recorded address delivered by El Salvador President Nayib Bukele at the Bitcoin 2021 conference in Miami, a bill to elevate the cryptocurrency as the country’s national currency alongside the United States dollar has been successfully adopted by the Legislative Assembly of El Salvador.
Owing both to Bukele’s heavy-handed manner of governance as well as his popularity — the thirty-nine-year-old leader maintains an approval rating above 90% in the Central American country of 6.4 million and is the first holder of his office not from the country’s two former major parties — he has managed to get 62 out of 84 possible votes in favor of the new legislation only three days after he first publicly announced his intentions on Saturday.
The bill mandates that Bitcoin be accepted by businesses in the country with the means to do so. Programs will be made available to teach business owners how to perform Bitcoin transactions, and immediate permanent residence will be offered to international Bitcoin entrepreneurs who invest three or more BTC in El Salvador’s economy. As the country’s capital gains tax does not apply to legal tender, this is expected to attract investors who expect the inaugural cryptocurrency’s value to appreciate further against traditional currencies.
El Salvador abandoned the Salvadoran colón in 2001, replacing it with the USD. Around 1.5 million Salvadorians live abroad, and around $6 billion USD in remittances enter the country each year. This adds up to a significant amount of transaction fees and middlemen, in no small part because 70% of the population do not have bank accounts and participate in the informal economy. In addition, though the “dollarization” of developing countries has traditionally curbed hyperinflation, using another country’s currency as legal tender also means being subject to the whims of that country’s monetary policy.
This situation was therefore ripe for Bitcoin’s adoption. But Bukele’s signature forcefulness was undoubtedly a factor in this development. Even before he achieved a supermajority in the Legislative Assembly on May 1, he was known to get his way through whatever means available. Criticized as an authoritarian and an autocratic by detractors, his presidency has seen the entrance of armed soldiers into the Legislative Assembly; accusations of the government cooperating with powerful gangs; and, more recently, strict lockdowns and policing in relation to the COVID-19 crisis.
Regardless of how one thinks of Bukele’s approach to politics, one thing is for certain: this is big news for Bitcoin, and certainly a milestone that will spark similar discussions among other countries around the world. When the new law takes effect in ninety days, an important experiment in the history of cryptocurrency will begin in earnest.