El Salvador Now Accepts Bitcoin as Legal Tender — the First Nation to Do So

News, Opinion | June 15, 2021 By:

El Salvador seems set to make history for being the first nation to accept Bitcoin as legal tender. Many other countries already allow people to own the cryptocurrency, so El Salvador’s legislators may set a guiding example for others to follow.

Congressional Lawmakers Approve the Proposal

El Salvador’s president announced the news during a Bitcoin conference via a recorded message in early June. However, at that time, he clarified that he had to first pass the bill through Congress. Getting it approved at the congressional level proved no problem. The proposal passed, with 62 out of 84 lawmakers voting in favor of it. 

That outcome means El Salvador will create a law that formally embraces Bitcoin as a legal tender currency in the Central American nation. A look at President Bukele’s Twitter feed suggests he’s proud of the achievement and a cryptocurrency enthusiast. 

For example, the leader retweeted news stories announcing El Salvador’s decision or praising it. He also retweeted a lighthearted link featuring caricatures of famous people from the Bitcoin world, and used Twitter to reveal that El Salvador would offer immediate permanent residence rights to cryptocurrency entrepreneurs. He clarified that making Bitcoin legal tender means people do not have to pay capital gains tax on it, too. 

What Will This Mean for El Salvador?

Once Bukele announced that cryptocurrency entrepreneurs could live in the country, some people predicted it would become a hot spot for the industry. It’s too early to confirm the exact benefits the legal tender legislation would bring. However, one of them is that people may be able to send any immigration filing fees in cryptocurrencies. 

Many people trying to immigrate to another country mistakenly send the wrong currency type when filing. For example, individuals attempting to come to the United States must provide the exact filing fee amount in U.S. dollars, because the dollar is legal tender there. The same is true in El Salvador, with the nation abandoning its own currency and making the dollar legal tender in 2001. 

Some law firms already accept Bitcoin as a payment method for people needing to pay their legal fees. El Salvador may take a similar approach by allowing people to send their immigration and residency permission fees in Bitcoin. If so, that could signal the adoption of the cryptocurrency even more broadly. 

Moreover, people in nations that don’t use the dollar but pay for things frequently with Bitcoin may view El Salvador as an attractive place to vacation. That’s especially true if they don’t want to bother with the hassles of visiting currency exchanges, and they love the idea of supporting nations that are fully on board with cryptocurrency. 

How Do Other Nations Treat Cryptocurrency? 

National leaders elsewhere have varied opinions on cryptocurrency and how broadly to allow it. Analysts speculated about which other countries may follow El Salvador’s lead. Paraguay, Mexico and Panama were among the nations where people think similar advancements are most likely to happen. Politicians in those places have already had discussions about making the countries more crypto-friendly. 

However, lawmakers in other places are not ready to welcome Bitcoin with open arms. Chinese officials recently banned banks and online payment providers from providing cryptocurrency-related services to customers. They also warned against people participating in speculative crypto trading. China previously kept initial coin offerings and cryptocurrency exchanges from operating in the nation. However, for now, people can still own Bitcoin and similar currencies. 

Some people also assert that El Salvador making Bitcoin legal tender is a decision that comes with problems of its own. For example, a provision in the country’s new law allows people to pay debts in Bitcoin if desired. However, Bitcoin’s value frequently fluctuates. It’s unclear whether people would pay the Bitcoin amount associated with the cryptocurrency’s value when the debt was incurred or when the bill becomes due. 

Bukele also tweeted about Bitcoin’s total market cap, saying how even 1% invested in El Salvador would cause a notable increase in the country’s gross domestic product. However, it’s far too early to say if such a scenario would happen and how long it might take to see such payoffs. Plus, it’s a stretch to equate market capitalization with the amount of Bitcoin people are willing to invest in a certain place. 

Many Unknowns Remain

People will undoubtedly keep watching El Salvador’s progress in this matter with great interest. If the legal-tender decision creates jobs, attracts entrepreneurs and makes people eager to travel there for pleasure, other national leaders may make similar choices. However, El Salvador is in uncharted territory, and there are numerous specifics left to work out.