The first ever country to adopt bitcoin as legal tender is now El Salvador.
A proposal aimed at making bitcoin to be used as legal tender in the country alongside the US dollar was approved by a majority of lawmakers of the country. The proposal was made by Salvadorian President Nayib Bukele.
The law states that “all economic agents shall accept bitcoin as a form of payment when it is offered by the purchaser of a good or service.” Tax payments can now be made in bitcoin,. the law also states.
Bukele rose to power in 2019 and is a right-wing populist leader of the country. He had previously announced the country working closely with the digital finance company Strike for setting up of the necessary infrastructure for supporting the use of bitcoin as an official currency.
When a country or a central bank allows a currency to be used as a legal tender essentially means that such a currency can be used for borrowing money for repaying debts. However granting such a stats does not automatically mean that an individual or a business enterprise would have to accept the currency as payment for goods or services.
Financial inclusion, tourism, innovation and economic development would be promoted by the use of bitcoin as legal tender, Bukele said in a tweet prior to the voting by the lawmakers. The smallest country of Central America, El Salvador was very quick to contain the coronavirus pandemic last year but its economy was severely hit at the same time, the World Bank had said.
The extreme volatility of crypto currencies has made central banks around the world hesitant to embrace digital currencies even though these institutions have generally reacted to bitcoin with fascination. For example, earlier this year, the value of bitcoin crashed by more than half even after surging astronomically to a record high of more than $60,000. There is even more volatility among other, more thinly traded crypto currencies as their values tend to widely seesaw and this is often because of speculation or meme tweets from Tesla CEO Elon Musk.
Despite this, the US Federal Reserve has been forced to take a hard look at the limitations of the old-fashioned dollar because of the growing popularity of crypto currencies. The Fed is particularly watchful of the dollar around payments and money transfers which can take days to accomplish. Bitcoin transactions happen almost instantaneously.
There is no need for any bank account for transferring crypto currencies as they are held in digital wallets. People in poorer communities – such as many in El Salvador, could benefit from this. They can also be useful among the in minority communities in the United States who can gain greater access to their finances.
(Adapted from CNN.com)