El Salvador have on Tuesday become the first country to adopt bitcoin as a national currency, kicking off a radical monetary experiment that could pose risks to the fragile economy.
President Nayib Bukele announced late Monday that his government has purchased another 200 bitcoins ahead of El Salvador’s formal adoption of the currency. El Salvador now holds 400 bitcoins, which are worth nearly $21 million at current trading levels.
Bitcoin will now be used as legal tender in El Salvador alongside the US dollar starting on Tuesday.
Bukele tweeted that the country’s brokers “will buy much more as the deadline approaches.”
It would be recalled that the President, a right-wing populist who rose to power in 2019, announced the plan to start using bitcoin in June.
Read Also: El Salvador Makes History As World’s First Country To Make Bitcoin Legal Tender
The law designating bitcoin as legal tender says that all “economic agents” shall accept the cryptocurrency as a form of payment. It also says that tax payments can be made in bitcoin.
Salvadorans will be able to download the “Chivo Wallet,” an application created by the government which will gift people $30 worth of bitcoin to promote its use.
Bitcoin has recovered some lost ground following a dramatic crash earlier this year, but it remains well below its record high of nearly $65,000 set in April. The price was $51,360 on Tuesday, down 0.7% in the last 24 hours, according to Coinbase.
Bukele via Twitter stated;
The process of #Bitcoin in El Salvador has a learning curve. Every step toward the future is like this, and we will not achieve everything in a day, nor in a month. But we must break the paradigms of the past.
In addition to Bitcoin ATMs, the country’s government has installed 200 machines where U.S. dollars can be exchanged for Bitcoins. Bandesal, owned by the State Bank of El Salvador, created a $150 million fund to support the transactions.
Public accounting will continue to use the U.S dollar, and traders unable to receive e-currencies will be exempted from the law, the government says.
Cryptocurrencies are held in digital wallets, rather than through a traditional bank account — meaning that people in poorer communities with less access to banks could use bitcoin as a way to gain increased access to their finances.
Although some citizens have embraced the technology, while others are wary. Social and economic organisations have asked the Salvadoran government to repeal the law, largely because they fear the extreme volatility of the cryptocurrency.
For instance, International Monetary Fund has warned that using bitcoin may be dangerous since it lost nearly half its value between April and May.
Recently, Kristalina Georgieva, managing director of the IMF, questioned;
How do we know what we collect in taxes when bitcoin goes up and bitcoin goes down? How do we plan for expenditures? Remember in April, bitcoin crossed $65,000 and then it dropped almost half of it. That is a problem that the ministry of finance is going to be wrestling with. And it is not an easy one.
Also, World Bank declined the request by El Salvador to help the government adopt it, citing environmental and transparency drawbacks.
Reacting, El Salvador’s government is betting that using bitcoin as legal tender will attract new investments. Authorities also hope to reduce commissions paid for sending remittances from abroad.
