El Salvador wants to be the first country to officially introduce Bitcoin. That should improve the lives and the future of many people, says the president. Or maybe it’s just about the threat of sanctions for corruption and money laundering.
Dhe crypto scene is listening. El Salvador could become the first country in the world to introduce the cryptocurrency Bitcoin as a legal currency alongside the dollar. The introduction of the cryptocurrency will create new jobs in the short term and help thousands of people outside the formal economy to participate financially, said President Nayib Bukele in a video presented at the Bitcoin 2021 conference in Miami. He will table a bill to Congress in the coming days to allow the use of cryptocurrencies as legal tender in the country, Bukele said.
The law is likely to be waved through by parliament. The 39-year-old populist president’s party with authoritarian features has had an absolute majority since the parliamentary elections three months ago. Specifically, an assumption would mean that Bitcoin cannot be refused as a means of payment in the Central American country. In practice, all Salvadoran companies and businesses would have to accept Bitcoin for purchases and transactions. Bitcoin would be equated with the dollar, which is already used as a reserve by the country’s central bank.
Facilitated international transfers
A peculiarity of the Salvadoran economy is that it is heavily dependent on cash, as more than half of the population has neither bank accounts nor credit cards. With the recognition of Bitcoin as a legal means of payment, transfer transfers from Salvadorans from abroad to their families at home are also to be made easier and free of charge. So far, a large part of transfers has been lost to intermediaries, said Bukele. Using Bitcoin would significantly increase the amount received by recipients in El Salvador, which will improve the lives and futures of millions of people. Traditional money transfer services such as Western Union charge fees of 10 percent or more for international transfers. In addition, it often takes days for the funds to arrive.
Last year, Salvadorans abroad, who had left the country in the past few decades because of the economic futility and rampant gang violence, transferred almost $ 6 billion to their relatives in El Salvador. Overall, they account for almost a quarter of the country’s annual economic output (gross domestic product), which was $ 24.6 billion in 2020.
Bitcoin could also prove to be a safe haven to avoid sanctions. Several officials and politicians close to Bukele are the target of investigations into corruption and money laundering by the US authorities. You face sanctions.
Cooperation with Strike
Details on the possible implementation of the Bitcoin plan are not yet known. According to Adam Back, the executive director of the Canadian company Blockstream, the Salvadoran government has put together a team of executives and professionals to help build a new financial ecosystem. It was “inevitable” that a country would convert Bitcoin into a legal currency at some point, Back said and announced that he would provide technical support to El Salvador in introducing the Bitcoin standard.
According to Bukele, the Central American country is also aiming for a collaboration with the payment app Strike, which was launched in March. This is intended to enable broad use of the digital currency. After just a few weeks, Strike is the most popular app in El Salvador and is now used as a bank account for many residents and retailers in the Central American country. It has been using the Bitcoin Lightning network, which is based on the core Bitcoin protocol, in two cities in El Salvador since 2020. El Salvador is the first market outside the United States that Strike ever entered, and Europe may be the next, they say.
The acceptance of a digital currency as legal tender will make the whole world sit up and take notice, said Jack Mallers, managing director of the payment service provider Zap and founder of Strike. The move will unlock the potential of Bitcoin for everyday use cases in an open network that will benefit individuals, companies and public sector services. “The adoption of a digital currency as legal tender offers El Salvador the most secure, efficient and globally integrated open payment network in the world,” said Mallers.
Bitcoin is the first and most famous digital currency. It is not controlled by a central bank, but created by a complex computer process. Payments are made over the Internet, trading on special digital exchanges where Bitcoin can be exchanged for real currencies. In the past few months, the market for cryptocurrencies has grown significantly due to the interest of professional investors in Wall Street such as bank JP Morgan and the electric car manufacturer Tesla in Silicon Valley. Bitcoin and other crypto currencies are subject to large price fluctuations due to the high level of speculation. Experts therefore consider Bitcoin to be unsuitable as a means of payment. In mid-April 2021, Bitcoin was worth the record price of $ 64,895. On Sunday only around 36,200 dollars or 29,700 euros had to be paid for Bitcoin. The news from El Salvador initially had no noticeable effect on the price of the cryptocurrency.