El Salvador allows Bitcoin as Legal Tender

  • El Salvador, a small coastal country in Central America, became the first in the world to make Bitcoin, a digital currency, legal.
  • Bukele’s New Ideas party enjoys a supermajority in the El Salvadorian legislature, and thus the El Salvador Parliament approved the move by a supermajority of 62 out of 84.
  • President Nayib Bukele, however, clarified that the dollar will continue to remain the dominant currency in the country and Bitcoin would exist side by side.
  • El Salvador has not had its own monetary policy since 2001, when a right-wing government made the US dollar the official currency.

WHY BITCOIN AS AN OFFICIAL TENDER?

  • El Salvador depends heavily on remittances sent by Salvadorians from abroad. 
  • Around a quarter of the country’s citizens live in the US, and in 2020 they sent home more than $6 billion in remittances despite the pandemic– making up more than 20% of the GDP.
  • Addressing the issue, Bukele said that currently “a big chunk of those 6 billion dollars is lost to intermediaries. 
  • By using Bitcoin, the amount received by more than a million low income families will increase in the equivalent of billions of dollars every year.” 
  • Bukele also said that Bitcoin will help increase financial inclusion in El Salvador, where 70% of the population does not have a bank account and relies on the informal economy.
  • The official bill also stated that “central banks' actions may harm the economic stability of El Salvador and in order to mitigate the negative impact , it becomes necessary to authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank.

BITCOIN

  • Bitcoin is a decentralized digital currency, without a central bank or single administrator. 
  • It can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
  • Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. 
  • The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto.
  • The currency began use in 2009 when its implementation was released as open-source software.



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