El Salvador is about to change the way the world sees cryptocurrency by accepting bitcoin as its official legal tender. President Nayib Bukele said it’s brave new world stuff and explained how the country’s economy will get a boost after this historical proposal.
Read here why and how it will implement the new law and what experts think about making cryptocurrency official.
Why Did El Salvador Make Bitcoin Official?
The country’s economy is heavily dependent on residents living abroad. And those who stay within the country do not have any bank account or jobs to earn their living. Their families and relatives residing abroad send money for survival.
But this transaction of money is not free of cost and attracts heavy fees. The amount paid as fees accounts for $6 billion last year. This was almost one-fifth of the country’s GDP.
The country could save such a huge amount, if e-currency is used as a mode of payment, believes Mr. Bukele. If this happens, El Salvador could save up to $400 million annually.
What’s Next After Making Bitcoin As Official Currency?
Here are a few steps the Government of El Salvador is taking to make the Bitcoin experiment successful.
1. A bitcoin wallet named Chivo will be installed across the country and only those with a national ID number can access the wallet.
2. Around 200 Bitcoin ATMs will replace the traditional ATM and offer the facility to exchange crypto with cash.
3. These ATMs will be funded by the Banco de Desarrollo de la Republica- the state bank of El Salvador. A $150 million fund is created for this purpose.
4. This new move would be highly beneficial for businessmen as they can easily make transactions for goods and services exchange. However, it is not mandatory for every merchant to trade in bitcoin. Those with no facility for e-transactions are exempted from it.
5. Residents can also pay tax in bitcoins after this new law come into effect.
For this, El Salvador is purchasing 400 coins worth $20 million initially and will buy more in near future. It’s just a start for the country and President Bukele is already optimistic and said “ El Salvador bitcoin experiment will be a learning curve.”
Experts Opinion On El Salvador Bitcoin Currency
Affect Country’s Creditworthiness
It seems that the bitcoin law will not last longer as neither experts nor 2/3rd of the population is confident about it. And its impact can be seen after President made the announcement. Salvador’s dollar bonds are now under pressure.
Experts have also warned El Salvador about the future consequences and said it will reduce its creditworthiness as most of the countries have banned bitcoin.
Boost Illegal Activity
Cryptocurrency’s volatile nature, anonymity in transactions, and other features attract money laundering and illicit activity. Experts fear that this would give criminals a chance to escape the government and continue illegal activities.
Bad For Environment
Even World Bank and International Monetary Fund have opposed this move saying that cryptocurrency requires large resources. It would have environmental consequences too.
Head of EM Sovereign Research, Nathalie Marshik, says the bitcoin program of El Salvador seems risky and she doubts its practicality and results.
Damages Bi-Lateral Relations
Furthermore, El Salvador’s bitcoin experiment is criticized by the United States. The country warns this could have a wrong impact on their relations.