El Salvador’s congress on Wednesday approved legislation that allows bitcoin to be used as legal tender, becoming the first country in the world to do so.
The legislative assembly’s vote fulfills a promise President Nayib Bukele made over the weekend to introduce the bill, which will allow the cryptocurrency to be used for all forms of payment in the Central American country — including taxes.
“In the short term this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” Bukele said in a video shown at the Bitcoin 2021 conference in Miami on Saturday and posted to his Twitter account.
“In the medium and long term we hope that this small decision can help us push humanity at least a tiny bit into the right direction.”
The U.S. dollar is El Salvador’s official currency. About one quarter of El Salvador’s citizens live in the United States and last year, despite the COVID-19 pandemic, they sent home more than $6 billion in remittances.
Bukele in subsequent messages on Twitter noted that bitcoin could be “the fastest growing way” to transfer those remittances. He said that a big chunk of those money transfers were currently lost to intermediaries, and with bitcoin more than a million low-income families could benefit.
He also said 70% of El Salvador’s population does not have a bank account and works in the informal economy. Bitcoin could improve financial inclusion, he said.
“This will improve lives and the future of millions,” said Bukele, while calling the move “a moral imperative.”
Under the legislation, prices can be displayed in both U.S. dollar and bitcoin amounts across the country. The U.S. dollar will still serve as the default currency for reference, and exchange rates for bitcoin will be determined by the free market.
bitcoin is struggling to recover from a month of market losses in May that totalled roughly 40 per cent, marking its worst monthly performance since September 2011.
Its drop was triggered by China’s efforts to crack down on mining and trading of cryptocurrencies, and Tesla’s move to halt payments over environmental concerns over the energy used to mine it.
Yet cryptocurrency advocates have welcomed El Salvador’s move.
Jack Mallers, the founder and CEO of mobile payment app Strike that launched in the country in March, helped Bukele deliver his message to the Miami conference and celebrated the bill’s passage on Twitter.
“This is the shot heard ’round the world for bitcoin,” Mallers was quoted as saying at the Miami conference.
Riding a 90 per cent popularity and his party’s dominance performance in Feb. 28 elections, Bukele has concentrated power. His party’s supermajority in congress ousted the justices of the Constitutional Chamber of the Supreme Court May 1. They then replaced the attorney general.
They had been critical of some of Bukele’s more drastic measures during the pandemic, including a mandatory stay-at-home order and containment centers where those caught violating the policy were detained.
While enjoying a positive relationship with former U.S. President Donald Trump, Bukele has had a much more tense relationship with the administration of President Joe Biden.
Last month, the White House Special Envoy for the Northern Triangle Ricardo Zuniga said during a visit to El Salvador that the U.S. government would like to see El Salvador reverse the moves against the court and the attorney general. Bukele said that would not happen.
Bukele’s concentration of power, attacks on critics and open disdain for checks on his power have raised concerns about El Salvador’s path. However, Bukele has a wide base of support in part due to the utter failure of the country’s traditional parties who ruled during the past 30 years to improve people’s lives and to his ability to provide short-term benefits.
Bukele has been praised for aggressively obtaining COVID-19 vaccines and running an efficient vaccination program far more successful than El Salvador’s neighbors.
–With files from the Associated Press and Reuters