The Central American country El Salvador has become the first nation in the world to officially classify Bitcoin as a legal currency after Congress approved President Nayib Bukele’s proposal to accept cryptocurrency, with 62 out of 84 possible votes.
The president said the government had made history, and the move would make it easier for the people of El Salvador living abroad to send money home. Bitcoin’s use as a legal tender, alongside the US dollar, will become law within three months.
Under the new law, every business in the country will be mandated to accept Bitcoin as legal tender for goods or services, unless it is unable to provide the technology needed to do the transaction.
Lawmakers in the country voted by a “supermajority” in favor of the Bitcoin Law. “It will bring financial inclusion, investment, tourism, innovation and economic development for our country,” President Bukele tweeted shortly before the vote.
El Salvador’s dollarized economy relies heavily on remittances, or money sent home from abroad. In 2019, it made up nearly $6 billion or around a fifth of the GDP, one of the highest ratios in the world, as per the data from the World Bank.
The use of bitcoin will be optional and will not bring risks to users. “The government will guarantee the convertibility to the exact value in dollars at the moment of each transaction,” Mr. Bukele said.
“This is a historic moment. Bitcoin is the soundest asset and one of the biggest technological innovations the world has ever seen. We are looking forward to how El Salvador incorporates Bitcoin into its economy,” Avinash Shekhar, Co-CEO of ZebPay said.
El Salvador intends to use cheap and clear volcano energy to mine the digital coin. The country struggles with trust in the monetary system. Since 2001, it hasn’t had its own monetary policy and over 70 percent of its total population has no bank account and this law is expected to open up financial services to these people.
The law was approved despite the concerns about the potential impact on El Salvador’s program with the International Monetary Fund (IMF). The country is seeking more than $1 billion with the IMF and experts say that the move could complicate the talks.
Currently, most of the world’s central banks are looking into the possibility of creating their own digital currencies. In April, the Bank of England announced it was planning to create digital money that would exist alongside cash and bank deposits.