El Salvador becomes first country to make bitcoin legal tender

President Nayib Bukele

In the early morning of this Wednesday (9.06.2021), the Congress of El Salvador approved a law that will convert bitcoin into legal tender in the country.

This Central American nation thus seeks to boost its economy and thus becomes the first to adopt a cryptocurrency, which users use mainly as a refuge for long-term value, waiting for its price to rise over time.

Bitcoin Law

"The purpose of this law is to regulate bitcoin as legal tender, unrestricted with liberating power, unlimited in any transaction" and to any title that natural or public or private legal persons require, reads part of article 1 of the new regulations approved and called Bitcoin Law.

The law establishes that the exchange between bitcoin and the dollar will be established "freely by the market" and will not be subject to capital gains taxes like any legal tender.

The legislation also indicates that every economic agent must accept bitcoin as a form of payment "when it is offered to him by whoever acquires a good or service" and that the Executive body will create the necessary institutional structure for the circulation of the cryptocurrency, according to what is established in the law.

The initiative, which only establishes the legal course of bitcoin and not of other cryptocurrencies or the underlying projects, was approved with the votes of 62 of the 84 deputies in Parliament and will enter into force 90 days after its publication in the Official Gazette. 

Opposing arguments

The opposition deputy Rodrigo Ávila pointed out during his speech in plenary session that bitcoin is "a volatile monetary mechanism and its use generates a serious situation if the pertinent measures are not taken." He also pointed out that in "several" countries the use of cryptocurrencies, especially bitcoin, has been banned, and in "others" the specific use of bitcoin has been warned.

He added that bitcoin "is allowed in several countries but has not been made official as legal tender, which is being done here without further analysis or due discussion." 

Defense of President Bukele

However, President Bukele pointed out on his Twitter that "#LeyBitcoin is ambitious, but simple, it is also well structured so that it has 0 (zero) risk for those who do not want to take risks."

Bukele pointed out that "the Government will guarantee the convertibility to the exact value in dollars at the time of each transaction." "At the same time, it will bring financial inclusion, investment, tourism, innovation and economic development for our country (...) that no one tells us that we are too small to be big," he added.

The Executive body must create the regulations governing the application of the law, so it is expected that some elements that the legislation does not explain, such as the "automatic and instantaneous convertibility" of bitcoin to dollar, will be clarified.