El Salvador to Legalize Cryptocurrency

El Salvador Accepting Bitcoin

El Salvador is the smallest country in Central America. It is a highly industrialized country yet so small. It was densely populated and extensively damaged by a war between the overwhelming majority population and the small, wealthy elite that leftover 70,000 people dead. The war was caused by the gross inequalities between the two communities.   

The war was ended in 1992 by the United Nations-brokered peace agreement ushering in political reforms. But, unfortunately, the country still suffers from the legacy of divided nations.

Mr. Nayib Bukele, a youthful political independent, won the presidency seat in 2019 on the pledge to create a ‘new Era’ for El Salvador. He has vowed to have good relations with the United States. He is also trying to take down gang violence and corruption. Salvado Sanchez Caren, Bukele’ss antecedent, had set up diplomatic ties with China and conducted a left-wing foreign policy. 

Bukele’s word on crypto

Mr. Bukele, the 39-year-old ElSalvado’ss President, recorded a video played in the 2021 cryptocurrency conference in Miami, Florida, last week. The presentation host, Jack Mallers, the founder of the digital wallet company strike. In the video, he claims to have plans for legalizing Bitcoin cryptocurrency and will be a trading commodity alongside US dollars which is ElSalvado’s official currency.

Maller said that this shot is heard around the world for Bitcoin. He also says that El Salvado adopting a natively digital currency as legal tender will provide it with the most secure, efficient, and globally integrated open payment networks in the world. 

Nayib Bukele would send a bill to congress to legalize Bitcoin cryptocurrency. El Salvador will make history if this happens. The bill will require approval from a parliament dominated by the president’s allies. 

It is most likely that the bill will be approved sinceBukele’ss New Ideas enjoys a supermajority in the El Salvadorian legislature. If this happens, it will be a first in the whole world, for no country has ever legalized cryptocurrency.

Sending Money To El Salvador with Bitcoin

Over 2 million Salvadorans live outside the country. Remittance from these Salvadorans working overseas represents 22% of the Gross Domestic Product. Therefore, ElSalvado’s economy relies mainly on money sent home from overseas. Mr. Bukele says that cryptocurrency will make it easier for them to send payments home. They keep close ties back home by sending over 4 billion USD each year. In 2020 they recorded a total of 5.9 million US dollars in remittance. 

The currency service these Salvadorans living overseas use to transfer money charges an extra fee. It takes a few days for the money to get to El Salvador, and it even requires the receiver to go and withdraw funds personally. According to Mr. Bukele, cryptocurrency transfer is the fastest and cheapest way for transferring millions in remittance. In addition, cryptocurrency will prevent the loss of the millions usually lost to intermediaries. 

70% of Salvadorans do not own bank accounts as they work in the informal economy, Mr. Bukele says. But, he goes ahead and says it will be a source of income for so many Salvadorans. It will help generate jobs and as well provide financial inclusion for thousands outside the formal economy. According to Bukele, it will as well boost investments in the country.

Country growth from the use of cryptocurrency

Bitcoin is a digital asset with no direct connection to the real market. However, using Bitcoin in the country has helped increase the amount received from a million low-income earners by several billion dollars every year. This improves the life of so many people in the country hence the thought of legalizing Bitcoin. 

According to the Coin market cap, the increasingly serious investors from wall street to Silicon Valley have helped in the growth of the cryptocurrency market. In mid-may 2020, the market grew to more than 2.5 trillion US dollars. 

Rohan Grey, a cryptocurrency expert, has cautioned on legalizing digital currency. He said that a country adopting cryptocurrency as a legal tender would give considerable control to a network that is not stable. However, he states that cryptocurrency has no accountable actors and does not have a track record that provides the kind of price stability and liquidity that a currency provides. 

Birth of the idea

President Nayib Bukele, a young, media-savvy, and trendy leader who worries Washington with his increasingly autocratic tendencies, the idea is idiosyncratic. It has never been seen before. It would be the first by a sovereign country. 

There are so many questions on how digital currency would become the country’s legal tender. The reason being there would be a significant overhaul of ElSalvado’ss financial infrastructure with Bitcoin at its heart. 

Since 2001 when the right-wing government made the US dollar the official currency, El Salvador has not had its monetary policy. However, El Salvador, Ecuador, and Panama are the Latin American countries that have dollarized the economy.

Bukele wishes that this small decision will help the country push humanity a tiny bit in the right direction.

Reactions to the idea

This move would bolster Bitcoin’s image as a currency of the future. It would as well strengthen PresidentBukele’ss standing among his supporters as an innovator. On the other hand, some crypto experts have criticized the move saying that Bukele should have looked at crypto options that work better as a currency than Bitcoin.

They further say that Bitcoin has three transactions per second processing rate seen as too slow compared to other virtual tenders like the Bitcoin Cash and the Monero.

Some are not accepting cryptocurrencies and complain about the lack of a central regulating authority. They further say that cryptocurrencies are the potential for fraud, money laundering, high energy costs, and extreme volatility.

Most world banks are thinking of creating their digital currencies. For example, the Bank of England announced in April 2021 that it is looking into starting a digital currency that will work alongside cash and bank deposits.

Cryptocurrency is fast gathering in parts of the world like Cuba, Venezuela, and Mexico, countries which face economic uncertainties. As a result, they prefer virtual tokens that are decentralized and unregulated. 

What the government thinks about cryptocurrency 

The growing appeal of cryptocurrency, which allows on-the-spot transactions and needs digital wallets instead of bank accounts, has grabbed the attention of governments worldwide looking to launch their virtual tokens.   

Nayib Bukele History with Bitcoin

Mr. Bukele became the mayor of San Salvador, the nation’s capital and a Suburb, before becoming the President. He had worked at his father’s marketing company even before he got into politics. 

The President had an excellent relationship with Donald Trump, the former United America president. But, on the contrary, he has a more tense relationship with Joe Biden, the current President of the United States. Biden’s administration had asked him to reverse his move to fire his top judges and the attorney general, but he refused. 

Our thoughts on El Salvador legalizing Bitcoin

Remittance being the primary source of income for El Salvador, they should go ahead and legalize Bitcoin. With Bitcoin, they will be able to avoid the millions of dollars they use with the intermediaries. 

Bitcoin will help boost the economic growth of the country.

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