by Wieke Beenen
A scoop for a small Central American country is worldwide news. In El Salvador it should soon be possible to pay for everything with bitcoin. On June 9, the 39-year-old President Nayib Bukele sent a bill to parliament to make bitcoin legal tender. The bill was passed by a vast majority. The Central American country is now the first country ever in the world to make Bitcoin legal tender.
The new law is good news for residents of the country. And the eyes of the world will surely be on this developement after this new law turns into practice in 90 days. bitcoin enthusiasts are happy, as they see it as a big step towards a world in which everyone can pay with digital currency. There are still many questions about how this will work out in practice.
The current currency in the country, the US dollar, will also remain valid, but soon everyone’s local greengrocer and supermarket will also have to accept payments in bitcoin, just like government agencies such as the tax authorities. The 90-day period is intended to prepare the country for the transition.
El Salvador is a very poor country, 70 percent of the population has no access to traditional payment services. Provided people have an internet connection, this will change very soon The state also arranges courses for citizens who find the world of crypto too complicated. The government feels that digital skills should not be a reason to be excluded.
Many El Salvadorians earn their money in the United States. Part of their income is sent to relatives in the home country on a monthly basis. Those transfers are not free, as there are always commissions to pay. Workers abroad always see part of their hard earned cash disappear into the pockets of American banks that facilitate their transactions. With bitcoin, there is no commission, because cryptocurrency is decentralized, without the intervention of a bank.
But can a coin of which the value can fall or rise by 20 percent in one day actually work as a payment method? A bitcoin is now worth half of the record value in April (more than $ 60,000 then, compared to about $29,595 today). This would mean a retail seller who is paid his turnover in bitcoin, has to sell twice as much in the event of such a price drop in order not to suffer financially. President Bukele recognizes that risk. The national development bank keeps $150 million in a specially set up account to absorb exchange rate risks. Bukele’s government also guarantees that anyone can immediately exchange bitcoins for dollars if they wish. El Salvador is also negotiating a $1.3 billion bailout package to ease the burden of budget deficits and debt with the International Monetary Fund (IMF).
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Author: Wieke Beenen