A law that recognizes bitcoin as legal tender has entered into force today in El Salvador. Let’s take a look at the current situation in this Central American country.
September 7, 2021, | AtoZ Markets – El Salvador has passed a law approving Bitcoin as legal tender on June 9 . Then, last month, President Nayib Bukele, announced that the adoption of the new law would take place today, September 7.
This means that from tomorrow, citizens will be able to shop, pay taxes and buy real estate with Bitcoin. Additionally, by law, anyone with access to technology will have to accept Bitcoin as a payment method. However, El Salvador does not mention any penalties for not complying with this law in three pages of government regulation.
El Salvador legalized bitcoin – What are the Pros and cons?
Proponents argue that such a move will promote financial integration for those who do not have bank accounts. Additionally, it will facilitate access to potentially highly profitable assets. Another important argument is that the law will reduce the cost of remittances, which account for a quarter of the country’s GDP. Many countries in the region look forward to seeing if all goes well. According to the president of the regional development bank, if this happens, many will start imitating El Salvador.
But critics believe that when the price drops, the plan could hit the poorer Salvadorans the hardest. The list of potential problems is long: from raising costs for banks and insurers to providing opportunities for money laundering to potential threats to fundamental economic stability. For example, the Moody’s rating agency, partially due to the law, lowered the country’s debt rating. The World Bank has refused to help El Salvador in the process of adopting the law, while the IMF has warned of the many problems posed by the new law.
Salvadorans skeptical of the new law
Unfortunately for the government, polls show most Salvadorans are against the plan. One survey showed that 7 out of 10 citizens even want the law to be repealed. Earlier, a civic group in El Salvador, led by opposition politician Jaime Guevare, filed a lawsuit against the country for adopting bitcoin as legal tender. There were also protests against the adoption of the law in the country.
Meanwhile, El Salvador is taking several steps to improve Bitcoin adoption. For example, it introduces a Bitcoin digital wallet called “Chivo.” All adult citizens who register with the government wallet will receive an airdrop of $30 in BTC. Chivo ATMs are also installed in the country, which will allow consumers to buy Bitcoin or convert it to cash. In this case, the commissions will be paid by the government of the country.
These initiatives and Chivo’s conversion capacity are supported by a $150 million fund approved this week. However, some economists question whether it will be large enough when there is a huge demand. A potential decline in Bitcoin’s price could then place the government under more fiscal pressure.
Torino Capital wrote in a note:
“If, for example, taxes are paid in cryptocurrencies while spending remains mostly in dollars, there would be significant pressure on the currency market as well as the level of international reserves.”
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