El Salvador now has Bitcoin as an official currency alongside the US dollar, after becoming the first Central American country to accept the cryptocurrency as legal tender. At three minutes to midnight local time, the country’s populist president Nayid Bukele tweeted that the country was about to “make history” with the move, after previously confirming that it had purchased 400 Bitcoins, the equivalent of approximately $20.9 million at current prices.
Supporters argue that the move will make it cheaper and easier for migrants to send money home to El Salvador, which is important given that such remittances account for more than 24 percent of the country’s GDP, according to World Bank figures reported by CNBC. There is also hope that the move will increase citizens’ access to financial services. According to the CEO of Strike, a digital finance company that assisted with the new law’s logistics, more than 70% of the country’s “active population” does not currently have a bank account.
However, there are concerns that adopting such a historically volatile currency will harm Salvadorans and jeopardize economic stability. Bitcoin reached an all-time high of over $60,000 in April before plummeting by nearly half in a late-summer crash. According to The Financial Times, the law contributed to Moody’s decision to downgrade El Salvador’s debt rating, and the IMF has also warned about its potentially destabilizing effects.
Citizens will be able to pay taxes in Bitcoin under the new law, and retailers will be able to display prices in the digital currency. Money converted into the currency will also be exempt from capital gains tax. According to CNBC, El Salvador is the first country to officially have Bitcoin on its balance sheet and hold it as part of its reserves.
After passing legislation in June, El Salvador has been preparing to support cryptocurrency for months. It began installing 200 ATMs across the country last month to allow citizens to convert between the country’s two official currencies. It is also launching its own digital wallet, “Chivo,” which will provide users with $30 in free Bitcoin to encourage adoption.
Regardless of the initiatives, anecdotal evidence suggests that few businesses are prepared for the change. According to the Financial Times, only three businesses in the country’s capital have immediate plans to accept the currency. Others had either not begun their preparations or were actively opposed to transacting in Bitcoin. According to CNBC, a survey conducted by Central American University found that 70% of Salvadorans disagreed with the decision to make cryptocurrency legal tender.