El Salvador Makes History by Adopting Bitcoin as Legal Tender, Prompting Other Countries To Follow

President Nayib Bukele announces proposal for Bitcoin to become legal tender in Chiltuipan, El Salvador - 07 Jun 2021
Camilo Freedman / SOPA Images / Shutterstock.com

El Salvador adopted Bitcoin as legal tender by passing a law yesterday, making it the first country to do so.

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“The #BitcoinLaw has been approved by a supermajority in the Salvadoran Congress, 62 out of 84 votes! History!” President Nayib Bukele tweeted yesterday.

The purpose of this law is to regulate Bitcoin as unrestricted legal tender with “liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out,” according to the text of the law that Bukele also posted on Twitter.

David Koepsell, CEO of blockchain company EncrypGen, tells GOBankingRates that Latin America is leading the way to bring more people into their economies. “Cryptocurrencies as legal tender promise to include the vast population of the unbanked, as well as spur entrepreneurs building new crypto-ecosystems, releasing many billions of dollars worth of trapped capital,” he says, adding that he thinks that “Africa and the rest of the global south is next to leapfrog the ‘developed’ world.”

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According to the law’s articles, the exchange rate between Bitcoin and the United States dollar will be freely established by the market and the USD will be used as the reference currency.

In addition, prices may be expressed in Bitcoin and tax contributions can be paid in Bitcoin.

Vanessa Grellet, head of portfolio growth at CoinFund, tells GOBankingRates that “El Salvador’s move to accept Bitcoin as legal tender is significant because most governments and central banks are looking at Central Bank Digital Currencies (CBDCs) in order to capitalize on the digital asset market.”

While she adds that it’s too early to know whether this is a watershed moment for digital assets, she says that “El Salvador has captured global attention, despite the risk to individuals due to the volatility of Bitcoin as an asset class, and [will] be watching closely to see what happens from here.”

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The law also notes that exchanges in Bitcoin will not be subject to capital gains tax, just like any legal tender and that every economic agent must accept Bitcoin as payment when offered to them by whoever acquires a good or service.

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“Without prejudice to the actions of the private sector, the state shall provide alternatives that allow the user to carry out transactions in Bitcoin and have automatic and instant convertibility from Bitcoin to USD if they wish. Furthermore, the State will promote the necessary training and mechanisms so that the population can access bitcoin transactions,” according to the law.

Manasi Vora, VP of Strategy and Operations at SkyNet Labs, tells GOBankingRates that Bukele’s law “has managed to put El Salvador on the global map.”

“Particularly of interest is the mandate that merchants cannot refuse Bitcoin payments. Curious to see how the ruling helps build the infrastructure needed for 6.5 million Salvadorians to be connected to Bitcoin,” she adds.

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According to the text of the law, “approximately 70% of the population does not have access to traditional financial services; it is the obligation of the state to facilitate the financial inclusion of its citizens in order to better guarantee their rights; in order to promote the economic growth of the nation, it is necessary to authorize the circulation of a digital currency whose value answers exclusively to free-market criteria, in order to increase national wealth for the benefit of the greatest number of inhabitants.”

The law goes on to state that “according to the previous considerations, it is essential to issue the basic rules that will regulate the legal course of Bitcoin.”

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Last updated: June 9, 2021

About the Author

Yaël Bizouati-Kennedy is a former full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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