Today, El Salvador has made Bitcoin an official currency. It is now the same as the US dollar. This was after El Salvador became the first country in Central America to accept the cryptocurrency. Three minutes before midnight local time, Nayid Bukel, the president of the country, tweeted that the country was poised to make history after purchasing 400 bitcoins (the equivalent to approximately $20.9 million today's prices).
According to CNBC, the World Bank figures show that migrants will be able to send money to El Salvador cheaper and more easily. This is significant as remittances make up over 24% of the country's gross domestic product. The move may also improve access to financial services for citizens, according to some hopes. Strike's CEO, a digital finance firm that assisted with the implementation of the law, stated that more than 70% of the country's population does not have a bank account.
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There are concerns that the adoption and use of such a volatile currency could cause economic instability in Salvador. Bitcoin reached a record high of $60,000 in April before plummeting nearly half its value during a crash in the latter part of the summer. According to The Financial Times and The IMF, the law contributed to Moody's decision to downgrade El Salvador's debt rating.
This law will allow citizens to pay their taxes in Bitcoin and will allow shops to display prices in digital currency. Capital gains tax will not apply to money converted into the currency. CNBC reports that El Salvador is now the first country to have Bitcoin in its balance sheet. It also has it as part its reserves.
El Salvador had been planning to support cryptocurrency for several months after the June legislation was passed. It installed 200 ATMs in the country last month to enable citizens to convert between two of the official currencies. To encourage adoption, it has also launched Chivo, a digital wallet that gives users $30 worth of Bitcoin.
Anecdotal evidence shows that very few businesses are prepared to accept the currency change, despite all the efforts. The Financial Times interviewed over 20 companies in the capital of the country and only three said that they had plans to accept Bitcoin immediately. Others had not started making preparations or were unwilling to transact in Bitcoin. CNBC reports that a survey by Central American University revealed that 70% of Salvadorans disapproved of the decision to make cryptocurrency legal tender.
