El Salvador becomes the first country to approve Bitcoin as legal tender

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At a time of growing skepticism over the use of bitcoin, Central American country El Savador has approved the cryptocurrency as a legal tender, making them the first in the world to do so.

Lawmakers in the country of 6.5 million people passed a bill late Tuesday that will eventually allow the digital currency to be used for many aspects of daily life despite concerns about the potential effect on the country’s weak economy. A majority of 62 out of 84 lawmakers approved the bill, June 8.

“The #BitcoinLaw has just been approved by a qualified majority” in the legislative assembly, the country’s President Nayib Bukele tweeted shortly after the vote. “History!” the 39-year-old president added.

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Prior to the vote, Bukele tweeted: “It will bring financial inclusion, investment, tourism, innovation and economic development for our country.”

He added that the use of Bitcoin, which will be optional, would not bring risks to users. He said it will go into law in 90 days.

Bukele said the use of bitcoin will not bring risks to users. “The government will guarantee the convertibility to the exact value in dollars at the moment of each transaction,” the president said.

Under the “Bitcoin Law”, bitcoin must be accepted by firms when offered as payment for goods and services. Tax contributions can also be paid in bitcoin.

El Salvador ranks 14th among Latin American countries in terms of Human Development Index. It ranks fourth in Central America behind Panama, Costa Rica, and Belize, partly because of ongoing industrialization. However, El Salvador continues to struggle with high rates of poverty, inequality, and gang-related violent crime.

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The country’s dollarized economy relies heavily on money sent back home from citizens working abroad. World Bank’s data in 2019 showed nearly $6 billion remittances to the country, about a fifth of the GDP – one of the highest ratios in the world.

Experts have cautioned that the move to adopt Bitcoin as legal tender could complicate the country’s talks with the IMF where El Salvador is currently negotiating more than $1bn program to patch budget gaps through 2023, following $389 million approved last month to help the government deal with the COVID-19 pandemic.