El Salvador has become the first country in the world to accept bitcoin as legal tender. The bill passed by a vote of 84-62. Since the law passed on Wednesday, the price of bitcoin increased by 5%.
According to the bill, “The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out.”
Practical Applications of Bitcoin as Legal Tender
Practically, this means that retail prices can be shown in bitcoin, taxes can be paid in bitcoin, and exchanges in bitcoin won’t be subject to capital gains tax.
Trade officials stressed that the new development will not replace the U.S. dollar as the country’s official currency and that bitcoin transactions will be tied to the dollar exchange rate. The government will guarantee that bitcoin can be converted to dollars through a trust created by the country's development bank, BANDESAL.
The new law will also promote training for the general population so they can become more familiar with how to conduct bitcoin transactions. The country will partner with Strike, a digital wallet company, to build the necessary infrastructure for bitcoin transactions.
Opponents and Proponents
Some critics have voiced opposition to the move due to the volatility of the cryptocurrency, while others say that the move may jeopardize the country’s $1 billion program with the International Monetary Fund (IMF).
Proponents of the law say that the inclusion of cryptocurrency will lead to the financial inclusion of people who don’t have access to traditional financial services. Much of El Salvador’s economy relies on money sent back from expatriate workers, and making bitcoin legal tender will make it easier for this to happen.