Bitcoin

Bitcoin rises 12% after El Salvador adopted it as legal tender The Salvadoran Congress approved that the most widely accepted cryptocurrency becomes a circulation currency in 90 days. Prices and taxes can be set in Bitcoin
The adoption of Bitcoin will facilitate the transfer of remittances without intermediaries. (Europa Press)
The price of Bitcoin advances 12% and returns to the range of USD 35,000 this Wednesday, after the Salvadoran Congress approved that the most accepted cryptocurrency becomes legal tender in 90 days.

In this way, El Salvador became the first country in the world to officially adopt Bitcoin after Congress approved a proposal by President Nayib Bukele to do so.

With 62 out of 84 possible votes, lawmakers gave the green light after midnight Tuesday to create the law and to use Bitcoin, despite concerns about the potential impact on El Salvador's program with the International Monetary Fund.

Bukele has touted the use of cryptocurrency for its potential to help Salvadorans living abroad send remittances back home, while ensuring that the US dollar will continue as legal tender as well.

The president, who sent the initiative to legislators, said that this law will help create jobs in the short term and will favor the financial inclusion of thousands of people who are outside the formal economy.

The approved rule establishes that all prices may be expressed in Bitcoin and that all tax contributions may be paid in the cryptocurrency, but that for accounting purposes, the dollar will be kept as the reference currency.

Due to the new regulations, El Salvador will be the first country in the world where prices and taxes can be set in Bitcoin
"The #LeyBitcoin is ambitious, but simple, it is also well structured so that it has zero risk (...) The Government will guarantee convertibility to the exact value in dollars at the time of each transaction," Bukele said Tuesday night in his twitter account.

The use of bitcoin as legal tender in El Salvador, which traded $ 35,216.77, according to data from Refinitiv Eikon, will take effect in 90 days, with the bitcoin-dollar exchange rate set by the market.

Analysts have said the move could complicate talks with the International Monetary Fund (IMF), where the Central American nation is seeking a more than $ 1 billion program.

President Bukele assured that the law will help generate jobs in the short term and favor financial inclusion
"The market will now focus on adoption through El Salvador and if other nations will follow," Richard Galvin, of the "crypto" fund Digital Asset Capital Management, told Reuters. "This could be a key catalyst for bitcoin for the next two to three years."

Useful for remittances

Emerging economies, where bank penetration is much lower than in developed ones and dependence on money transfers from abroad is much higher, were at the forefront during the cryptocurrency bonanza.

Outside of the United States, the nations with the highest volumes of trade and mining activity are all developing countries, according to Bank of America (BofA), including China, Colombia, India, Kazakhstan, Kenya, Nigeria, South Africa, Ukraine and Vietnam.

But the use of digital currencies can also pose risks to dollarized economies, such as the Salvadoran, in terms of macroeconomic and financial stability, as well as the possible rise in the cost of living, the bank added.

Detractors of the initiative warn that the adoption of Bitcoin could hamper a potential program of El Salvador with the IMF
"The root cause of dollarization is high local inflation, which could also worsen if digital currencies turn out to be inflationary," BofA's David Hauner told Reuters.

Data from the World Bank showed that remittances to El Salvador accounted for nearly $ 6 billion or about a fifth of GDP in 2019, one of the highest rates in the world. It was not immediately clear what proportion of remittances sent to the country are in the form of Bitcoin.

Cryptocurrency offers, in theory, a fast and inexpensive way to send money across borders without relying on remittance companies. Bukele says that around 70% of people in El Salvador lack access to traditional financial services.

Still, the use of cryptocurrency for remittances globally is patchy. The conversion of local currencies to and from Bitcoin often relies on informal brokers. Prices are volatile and buying and selling is a complex process that requires technical knowledge.

El Salvador "will promote the training and the necessary mechanisms so that the population can access Bitcoin transactions", in accordance with the law.