Wed Sep 08 2021
El Salvador adopted Bitcoin as legal tender this week. Will the risky gamble pay off?
El Salvador became the first country in the world to adopt the cryptocurrency Bitcoin as legal tender alongside the US Dollar (which it adopted in 2001).
President Nayib Bukele announced late Monday 6th September that his government had purchased 200 more bitcoins, putting their total worth of held bitcoins at nearly $21 million (at current trading levels) ahead of the country’s formal adoption of the currency into legal tender on Tuesday 7th September 2021.
It’s a volatile and risky gamble as the cryptocurrency is prone to dropping off significantly in value which poses an uneasy threat to El Salvador's already fragile economy. It has left the country divided, with 68% percent of citizens polled saying they don’t trust it and are wary of the digital currency.
The law has been pushed through at incredible speed – the plan to designate bitcoin as legal tender, and that all “economic agents” and tax payments will accept the cryptocurrency, was announced in June 2021
The “Chivo Wallet” was launched in aid of the bitcoin move. It’s El Salvador government created and will deliver $30 worth of bitcoin to all Salvadorians who download it.
The process of Bitcoin in El Salvador has a learning curve. Every step toward the future is like this, and we will not achieve everything in a day, nor in a month, but we must break the paradigms of the past
The move has required El Salvador to form a partnership with digital finance company Strike to create the infrastructure required.
The thing that draws people to cryptocurrencies is that they’re held in digital wallets, not traditional bank accounts, so the government has had to accommodate for that.
The divide come from two angles – on the one hand, it allows people who can’t access banks easily to have a way to access their finances more simply. But the other side of the fence is the fear of the volatile nature of cryptocurrency.
The International Monetary Fund (IMF) are also concerned about the economic, financial and legal ramifications of this gamble. Following an emergency loan to El Salvador last year, and in the midst of talks of another round of lending, there’s no way to plan for the crashes and highs that bitcoin is susceptible of.
How do we know what we collect in taxes when bitcoin goes up and bitcoin goes down? How do we plan for expenditures? Remember in April, bitcoin crossed $65,000 and then it dropped almost half of it. That is a problem that the ministry of finance is going to be wrestling with. And it is not an easy one.
Wed Sep 08 2021