The Parliament of El Salvador passed the on Wednesday Bitcoin law This makes the Central American nation the first to officially introduce Bitcoin as legal tender. Bitcoin is now joining the US dollar (USD), which has been the country’s legal currency since 2001. The new law will come into effect within 90 days.
“Despite the small size of El Salvador, Bukele’s endeavor is an important milestone in the history of monetary policy with a significant impact on the global financial system.” – Avik Roy, Forbes
The #Bitcoin Law was approved by a super majority in the Salvadoran Congress.
62 of 84 votes!
– Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
Meanwhile, India’s proposed regulations on cryptocurrency remain unclear. First, the government said it would ban cryptocurrency activity in India, then made it clear that it would take a “calibrated approach”. After that, the government changed the rules on financial disclosures for companies that recognize virtual currencies as digital assets. It also indirectly recognized the role of crypto exchanges as companies performing a fiduciary role. The government also told parliament that crypto exchange transactions and investments were taxable. It is reportedly now forming a new committee to examine the prospect of regulating the crypto-verse.
Why did El Salvador make Bitcoin legal tender?
Earlier in the day, President Nayib Bukele sent the Bitcoin bill to the country’s Congress for a vote. The succinct three-page bill gives the following reasons why El Salvador introduces the cryptocurrency:
- For the benefit of the residents: The bill states that it is “the government’s obligation to promote and protect private businesses in order to create the conditions necessary to increase national wealth for the benefit of the greatest possible number of residents.”
- Increase Financial Inclusion: With around 70% of the population lacking access to traditional financial services such as a bank account, the government is hoping to use Bitcoin to facilitate the financial inclusion of its citizens. “Financial inclusion is not only a moral imperative, but also a way to grow the country’s economy by providing access to credit, savings, investments and secure transactions,” said Bukele said Last week the Bitcoin 2021 conference took place in Miami. Bitcoin will “create short-term jobs and provide financial inclusion for thousands outside of the formal economy,” he added.
- Bitcoin only responds to market economy criteria: The bill states that it will allow Bitcoin to circulate because its “value is strictly free market” and this will help the government fuel the nation’s economic growth.
- Simple transfers: Remittances from Salvadorans working abroad totaled $ 5.9 billion in 2020, accounting for nearly 22% of the country’s GDP. At the Bitcoin 2020 conference, Bukele said that Bitcoin is “the fastest growing way to transfer those billions of dollars in remittances and prevent millions from being lost to intermediaries”.
#Bitcoin has a market capitalization of $ 680 billion.
If 1% of that is invested in El Salvador, it would increase our GDP by 25%.
On the other hand, #Bitcoin will have 10 million potential new users and the fastest growing way to send $ 6 billion per year in money transfers.
– Nayib Bukele 🇸🇻 (@nayibbukele) June 6, 2021
Rules governing the use of Bitcoin
- Unrestricted legal tender: The law states that Bitcoin will be “unrestricted legal tender with liberating power, unlimited in every transaction and for every title that public or private natural or legal persons must comply with”.
- Price determined by the free market: The exchange rate between Bitcoin and USD is freely determined by the free market.
- Prices can be expressed in Bitcoin: The prices of all products and services offered in the country can from now on be given in Bitcoin.
- Taxes to be paid with Bitcoin: Citizens can use Bitcoin to pay taxes to the state
- Not subject to capital gains tax: As with any legal tender, Bitcoin exchange is not subject to capital gains tax. Currently, Bitcoin is considered property and taxed as such in countries like the United States.
- USD will be the reference price for accounting purposes
- Mandatory to accept Bitcoin as a form of payment: The law states that “every economic operator must accept Bitcoin as payment when offered by someone who purchases a good or service,” with the exception of those who “do not have access to the technologies that enable them to conduct transactions in.” To carry out Bitcoin “.
- The conversion in USD is provided: Targeting those who do not want to take the volatility risks of Bitcoin, the government said it will provide alternatives that will allow those to convert payments in Bitcoin to USD automatically and instantly. To make this easier, the government will set up a trust at the El Salvador Development Bank (BANDESAL) that will guarantee the convertibility of Bitcoin to USD. “If there’s an ice cream parlor, he doesn’t really want to take the risk, he has to accept bitcoin because it’s a mandatory currency, but he doesn’t want to take the risk of convertibility so he wants to put dollars in his banking business when he sells the ice cream , he can ask the government to convert his bitcoins into dollars, “said Bukele in a Twitter Spaces conversation.
- Pre-commitments can be paid with Bitcoin: The law states that all past commitments in money expressed in USD can be paid in Bitcoin.
Steps the government will take to increase the adoption of Bitcoin
Promote necessary training: The bill requires the government to promote the education necessary to improve people’s access to bitcoin transactions.
Support for those starting Bitcoin-related ventures: A separate one Press release from the President’s Office stated that the introduction of the cryptocurrency Bitcoin will provide investment incentives and invite new technologies that will give the country an extra boost to its economic activity. To make this easier, the government will provide 1) permanent residence for those starting Bitcoin-related businesses, 2) tax incentives, and 3) an attractive business climate.
Provide better internet coverage: The press release also stated that the government will take steps to install satellite technology to bring the internet to places where current providers have a bad signal, allowing more people to conduct Bitcoin transactions.
Partnership with strike: During the Bitcoin 2021 conference last week, Bukele announced El Salvador’s partnership with the digital wallet company Strike to build the country’s modern financial infrastructure using Bitcoin technology.
Can Bitcoin Mining Boost: In a Twitter section conversation Bukele said the government could also encourage bitcoin mining early Wednesday.