In a major step toward global Bitcoin adoption, El Salvador has become the first country in the world to adopt bitcoin as legal tender after Congress approved President Nayib Bukele’s proposal to embrace the cryptocurrency. Despite El Salvador's small size, this move is a major milestone in the history of monetary policy.
A COUNTRY FOR THE FUTURE
Countries like El Salvador have struggled with trust in their local monetary systems for decades. El Salvador in particular is a largely cash economy, with roughly 70% of its people not owning a bank account or credit card. It’s heavily reliant on remittance inflows from expat workers in the US, that account for more than 20% of El Salvador’s gross domestic product. Incumbent services can charge 10% or more in fees for those international transfers, which can sometimes take days to arrive. The move to a digital currency will allow family members to avoid the costly fees involved in sending money home each month.
Bukele described it as a way to “design a country for the future.” On Twitter, he stated that if 1 percent of the world’s bitcoin moved to El Salvador, it would amount to a quarter of the country’s annual economic output. He also pointed out that “by using Bitcoin, the amount received by more than a million low income families will increase in the equivalent of billions of every year. This will improve lives and the future of millions.”
START OF A DOMINO EFFECT?
El Salvador's move to accept Bitcoin as a legal tender could have a global impact. We may just see a domino effect in which other countries adopt Bitcoin as part of their currency reserves. In a press release, Strike, a mobile payments app set up in El Salvador, stated:
“Making bitcoin legal tender is a leapfrog moment that can help countries like El Salvador shift from a largely cash economy to an innovative, inclusive, and transparent digital economy where your bank account is your phone.”
Wyoming-based Crypto bank founder Caitlin Long also pointed out:
‘If El Salvador adopts legislation to make bitcoin legal tender, it's likely to get status as “money '' so treated on par as a foreign currency by banks. (Which means) it possibly gets “cash accounting” treatment under USGAAP/IFRS solving adverse Bitcoin accounting treatment.’
This could have a huge impact on the legal and accounting status of the digital currency globally, making it easier for companies to hold Bitcoin on their balance sheets. It may even see Bitcoin get favourable treatment under bank capital requirements.
Marc van der Chijs, Dutch investor, had a similar opinion too, stating:
CONCLUSION
Either way, El Salvador’s move to make bitcoin legal tender is likely to bolster Bitcoin's image as the "currency of the future" and we can’t wait to see how this plays out! One thing is for sure, the race for the only 21 million bitcoins that will ever exist is well and truly on.
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