On June 9th, El Salvador passed a bill that recognized bitcoin as legal tender. As a result, businesses in the Latin American nation can now accept digital currency as payment for their goods and bank loans, while the general public can also use it to pay taxes.
The adoption of Bitcoin, according to President Nayib Bukele, will allow for greater financial inclusion. He also stated that it would improve the amount of money that low-income households receive in remittances from family living abroad by eliminating the intermediaries.
A small chunk of it gets lost to these intermediaries from the $6 billion sent back by their diaspora. The president claimed it could increase the overall amount received by millions of low-income families.
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Digital currency to the rescue – What this means for El Salvador
Bukele also intends to establish a $150 million trust at a government finance corporation to allow Bitcoin to be automatically converted to US dollars.
According to the Wall Street Journal, “adoption of cryptocurrency might also assist the country cushion future economic sanctions if diplomatic relations with the United States continue to worsen,” according to Ricardo Castaeda of the Central American Institute for Fiscal Studies.
El Salvador making bitcoin as legal tender is seen as a move to reduce its dependence on the American dollar. This is because it has been especially vulnerable to US economic penalties since adopting the US dollar in 2001.
Using the US currency limits a nation’s ability to spur the economy at moments of emergency, such as the COVID-19 panIn addition, when. When the dollar is strong, it becomes harder for nations to purchase essentials, potentially leading to social repercussions.
What has been the reaction? Will other countries follow suit?
The idea is expected to maintain Bukele’s reputation in El Salvador, where he is regarded as an innovator, and to increase the attraction of Bitcoin and cryptocurrency, which has undergone significant oscillations this year.
Nevertheless, some crypto experts have criticised the move, claiming that El Salvador could also have looked into other crypto possibilities that would work better as a monetary system than Bitcoin.
However, Cryptocurrency is quickly gaining traction in many countries beset by economic uncertainty, such as Cuba, Venezuela, and Mexico, where many choose digital tokens that are unregulated and decentralised.
Countries such as Canada, U.S.A, and Australia don’t have bitcoin as legal tender, but they count it as an asset that people can use for capital gains taxes.
Do governments view crypto as a risk or a revolution?
The growing attraction of cryptocurrencies, which allow rapid transactions and require digital wallets rather than bank accounts, has piqued the interest of governments across the world. The risks and rewards of Bitcoin and other Cryptocurrencies are constantly being assessed by the powers that be.
They are now developing their own virtual tokens, known as central bank digital currencies (CBDCs). CBDCs are being promoted to provide banking services to those who traditional banks have previously underserved.
For now, El Salvador’s decision remains a key bone of contention among crypto experts and sceptics. Time will tell how this will pan out and if successful, it could be the start of something revolutionary. The World Bank has refused to aid El Salvador in its implementation efforts, but the country remains convinced that Bitcoin is the way foSo let’s. Let’s wait and watch!
P.S: KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.