Early in the morning of June 9, 2021, President Nayib Bukele of El Salvador, 39, tweeted that the Salvadoran Congress had approved his proposed law that would make Bitcoin legal tender in El Salvador. The vote was 62 out of 84. El Salvador thus becomes the first country to approve the use of Bitcoin as legal tender. The country currently uses the U.S. Dollar as its currency. Bitcoin will become legal tender in 90 days, alongside the Dollar.
Under the law, businesses that provide goods or services must accept Bitcoin as legal tender, although there is an exception for businesses that are unable to provide the technology needed to conduct the transaction. Tax payments may also be made in Bitcoin.
President Bukele tweeted that the new law “will bring financial inclusion, investment, tourism, innovation and economic development for our country.” It is estimated that remittances (monies sent home from abroad) make up about 20 percent of El Salvador’s GDP. At the same time, according to the legislation, about 70 percent of the country does not have access to banking. Bitcoin transfers do not require bank accounts so there is hope is that the new law will provide greater access to financial services.
Success is by no means guaranteed. Bitcoin is notorious for high transaction fees. And, another significant problem with businesses accepting Bitcoin is its volatility. From a high of more than $64,000 in mid-April, the price of Bitcoin fell to almost half that amount in early June. The more reasonable long-term solution could be the Central Bank Digital Currencies that so many countries (including G-7 countries) are currently studying and that would operate more as a stablecoin.