El Salvador becomes the only country to make Bitcoin legal tender

El Salvador has made history by becoming the first country in the world to adopt Bitcoin as a nationally accepted currency as of today.

Bitcoin is now officially in circulation in El Salvador alongside the US dollar.

A token representing Bitcoin virtual currency sits among cables and LED lighting inside a ‘mining rig’ computer in this arranged photograph in Budapest, Hungary, on Wednesday, January 31, 2018. Cryptocurrencies are not living up to their comparisons with gold as a store of value, tumbling last week Monday as an equities sell-off in Asia extended the biggest rout in global stocks in two years. (Photo: Akos Stiller/Bloomberg)

The Latin American country nation announced on June 9 that it would be introducing Bitcoin into its mainstream economic system.

Deep division on bitcoin

However, there is bitter division within the country on the move to make Bitcoin legal tender, leading to protest action. In fact, among experts there has been strong disagreement on the matter with the promise of Bitcoin not treated as legal tender

The announcement has also divided global experts on the potential outcome of the move towards Bitcoin in El Salvador. Some industry leaders believe the initiative will raise the profile cryptocurrencies, of which Bitcoin is one form, resulting in better regulation of decentralised and democratised finance.

However, others have taken a more sceptical stance, declaring that cryptocurrency is too unstable to be used as mainstream tender. Fintechmagazine.com says the risks outlined by some economic experts have even
prompted a number of El Salvadorans to take to the streets in protest against the adoption of Bitcoin, as an official currency.

Local opinion polls show that Salvadorians are not happy about the change whilst highlighting the World Bank’s warning against its adoption. Some analysts have described the decision to go with Bitcoins as legal tender as
an “attention-seeking move” from an “authoritative regime”.

However, if successful, the move is likely to result in other countries adopting cryptocurrencies into their mainstream economies.

Highlighting some of the benefits

Fintech magazine.com has highlighted some of the arguments in favour of Bitcoin adoption in El Salvador:

  • El Salvador is already reliant on a first-world currency which is problematic in terms of lending and borrowing.
  • Being reliant on the US dollar hinders emerging economies.
  • Adopting Bitcoin could reduce the cost of remittances.
  • El Salvador could potentially increase its own reserves through the adoption of Bitcoin.
  • Using the crypto-currency could increase foreign investment in El Salvador.

One industry official, Nigel Green, chief executive and founder of deVere Group, a leading financial services giant, says the move will be groundbreaking in terms of greater adoption of Bitcoin. According to him, “El Salvador is making history with a bold jump into the future of money, which is inevitably digital, by officially recognising Bitcoin as legal tender together with the US dollar.”

Nigel Green, founder and CEO, deVere Group (Photo: Youtube)

Green points out that, “other countries, in particular other Central and South American nations, will be watching with great interest to see if the experiment works to shore up El Salvador’s shaky economy. There’s no doubt that there are major risks attached to the decision made by the young maverick, President Nayib Bukele.”

He is predicting that by diversifying the nation’s dollar reserves into the cryptocurrency, there could be additional opportunities to earn yield, meaning the size of the reserves would grow.

— Durrant Pate