Bitcoin is taking its first steps towards world domination and plans are already underway for the asset to plant its feet firmly in El Salvador. While things are in motion to ensure the success of this pioneering move, resentment and unease lie underneath all the pomp and fanfare.
El Salvador Takes The Bold Leap
On June 8th, the Legislative Assembly of El Salvador passed the Bitcoin Law to confer the status of legal tender on Bitcoin. Billed to take effect on September 7th, the El Salvadoran government has rolled a series of plans to help the debt-ridden nation ease through the transition. As the launch date draws closer, plans are underway for the development of Chivo, a national digital wallet with a functionality that allows for the conversion of bitcoin to dollars. To encourage the use of the digital asset, the government is giving out $30 in Bitcoin to users of the app.
200 Bitcoin ATMs have been deployed around the country while banks are making efforts to prepare for the September 7th launch. With a few days to launch, the legislative assembly has launched a $150 million trust to improve exchanges with the US dollars and the air is rife with speculation that the amount could significantly be increased.
President Nayib Bukele has underscored the importance of the transition saying that it will improve cross-border payments and attract international investors. The leader further announced that transactions in Bitcoin will not be subject to capital gains tax and unveiled plans to make the country a Bitcoin mining hub by leveraging on geothermal energy from the country’s volcanoes.
The enthusiasm that greeted the announcement of the country’s transition to Bitcoin has faded away and has given way to pessimism in some quarters. Some individuals have cited the volatility of the asset as a negative attribute that threatens to wipe the value off their earnings.
The decision to forge ahead may stifle the negotiation of loans from international agencies and already, the International Monetary Fund has sounded a warning about the potential pitfalls from the move to use Bitcoin as a legal tender. Some analysts believe that proper thought was not given to the law and a sufficient public survey was not carried out by the lawmakers.
With a week to go, protests have broken out in the country against the move as a cross-section of the public express their uncertainty about the decision. Extreme volatility and the potential as a tool for money laundering are among the reasons for their displeasure.
Why It Matters
El Salvador is the first country in the world to use Bitcoin as legal tender and could potentially induce other countries to begin to use the digital asset as legal currency. This can set off a chain reaction for the global adoption of cryptocurrencies and may trigger a massive price rally for Bitcoin which currently trades at around $50k.