El Salvador has become the first country to adopt bitcoin as legal tender, a real-world experiment that supporters say will lower commission costs and promote financial inclusion for billions of dollars remitted home from abroad, while critics say has warned of risks, including the volatility of the cryptocurrency.
Lawmakers in the Central American country passed legislation in June to make bitcoin legal tender with the US dollar, with the law taking effect on September 7.
The country’s President Nayib Bukele revealed twitter late monday night El Salvador has just bought another 200 bitcoins, bringing the country’s stake to 400, which is worth about $20.5 million at current prices.
To make adoption easier, El Salvador has launched a bitcoin wallet app called Chivo, which users can register with a Salvadoran national ID number and that comes preloaded with $30 worth of cryptocurrency.
“There is a learning curve in the #Bitcoin process in El Salvador. Every step towards the future is like this, and we won’t achieve everything in a day or a month,” Bukele wrote on twitter. “But we have to break the paradigms of the past.”
Under the new law, businesses would be required to accept bitcoin to settle transactions and Salvadorans would be able to use it to make tax payments.
Salvadoran officials hope the move to adopt bitcoin will save on transfer fees on remittances, or money sent home from abroad. According to the World Bank, remittances to El Salvador totaled around $6 billion in 2019, accounting for about a fifth of the country’s GDP.
The government also hopes that making bitcoin legal tender will promote financial inclusion in El Salvador, where about 70 percent of citizens do not have access to traditional financial services as required by bitcoin law.
Proponents and critics alike are sure to watch the rollout closely and monitor adoption and usage. Public opinion among Salvadorans was divided on the move to make bitcoin legal tender, according to a survey (PDF) by Central American University, with nearly 68 percent of the country’s citizens saying they disagree with its adoption. The survey also revealed that only 4.8 percent of those surveyed correctly identified bitcoin as a cryptocurrency, while two in ten had never heard of it.
Salvadoran taxi driver Daniel Hercules told the BBC he is excited about the adoption of bitcoin, but is also concerned about the volatility of the cryptocurrency.
“I have accepted bitcoin for about two months because I knew it was coming. I just had someone pay me $40 in bitcoin for airport fare but that is rare. Only about 10% Customers prefer to pay with bitcoin,” he told the outlet, adding that he is using bitcoin like a savings account, rather than converting it into US dollars, citing higher conversion costs.
Hercules said that “the one thing that worries me the most” is to lose money if the value of bitcoin drops. A crash earlier this year saw bitcoin fall from a record high of around $65,000 to just under $30,000. As of 7:52 am New York time on September 7, the cryptocurrency was trading at $50,986.
The International Monetary Fund (IMF), which granted an emergency loan to El Salvador last year and is negotiating another round of lending, has expressed reluctance to adopt bitcoin as legal tender in the country. .
“The adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis. We are therefore following developments closely and will continue our consultations with authorities, Gerry Rice, director of the IMF’s communications division, said back in June.
Recently, IMF chief Kristalina Georgieva said that bitcoin’s price volatility has made it challenging for authorities to make rational financial decisions.
“How do we know what do we collect in taxes when bitcoin goes up and bitcoin goes down? How do we plan for spending? Remember that in April, bitcoin crossed $65,000 and then its almost Half fell.
In a July 29 blog post announcing the release of two policy papers on digital currencies, the IMF acknowledged that “the opportunities are enormous” for digital currency, including cheaper transactions and the potential to promote financial inclusion.
“A local craftsman can, in an instant, get paid potentially more cheaply from foreign customers. A larger financial group can deal with asset purchases more efficiently. Friends can distribute bills without taking cash. People without bank accounts can safely save and create transaction history to avail micro loans. Money can be programmed to serve only certain purposes, and can be accessed seamlessly from financial and social media applications. Governments can tax and redistribute revenue more efficiently and transparently,” the authors noted.
At the same time, they noted a number of risks, including implications for domestic economic and financial stability, with the most far-reaching implications for the stability of the international monetary system.
“The least stable, which hardly qualifies as money, are cryptocurrencies (such as bitcoin) that are unsupported and subject to market forces,” the authors caution.
This News Originally From – The Epoch Times