On September 7, 2021, El Salvador became the first country to adopt Bitcoin as legal tender. The journey towards this move has sparked debate with those favouring the adoption, stating that it will lower commissions for remittances sent from abroad by around $400 million. However, those against the move claim that it could increase money laundering.
El Salvador has been using the US dollar as the official fiat currency since 2001. The USD remains legal tender, but it will work alongside Bitcoin, which will now be accepted as a means of payment by businesses.
Salvadorans Worried about Volatility
El Salvador’s president, Nayib Bukele, is highly popular with the public, and with his party holding the majority of seats in the country’s Congress, the Bitcoin law was passed with ease. However, Bukele has been accused of not upholding democracy.
Most of the arguments opposing El Salvador’s move claim that adopting Bitcoin as legal tender will expose the Central American country to increased regulatory and financial risks. Besides, Salvadorans are also concerned about the volatile nature of Bitcoin prices, which appreciate and depreciate every day.
To ensure that the public supports the move, the government has promised Salvadorans that they will receive $30 worth of Bitcoin if they create a government digital wallet. Before the implementation of the new law, the country had purchased 400 Bitcoins. The news has positively affected Bitcoin’s prices, which have touched $52,000 for the first time since the May market crash.
The government digital wallet app has already been made available for download by Huawei, but by early Tuesday, it was yet to be listed by Google and Apple. However, the president made a tweet urging the companies to list the app.
Country is Prepared
Before the launch of this new app, the El Salvador government had already put Bitcoin ATMs in place to allow citizens to convert Bitcoin into USD and withdraw at zero commission. A day before the launch, the country’s president had urged citizens to give the new system time and not expect quick results from the initiative.
In a post on Twitter, Bukele stated, “Like all innovations, El Salvador’s bitcoin process has a learning curve. Every road to the future is like this, and not everything will be achieved in a day or in a month.”
The prices of Bitcoin have a reputation of being highly volatile, which led to the coin lost nearly two-thirds of its value in May when it crashed from a peak of $63,500 to below $30,000.
After the country’s Congress passed the Bitcoin law, it raised concern from global financial institutions such as the World Bank and the International Monetary Fund (IMF). They expressed concerns over the volatile nature of these digital assets. The move has also raised speculations on whether the IMF will approve the country’s $1 billion loan request.
Several analysts have also stated that Bitcoin could increase activities related to money laundering, given that the Central American country is battling with corruption and organized crime.
While Bukele has promised to eliminate corruption in the country, some of his political allies were recently listed under the US corruption blacklist. Bukele has been in power for under two years, and in this time, he has taken control of all arms of the government. Bukele is also vocal on Twitter, where does not shy away from controversies.