El Salvador may become the first country to recognize bitcoin as legal tender, according to Salvadorian President Nayib Bukele, who made the announcement in a video recorded at the Bitcoin 2021 conference in Miami.
According to the conference’s organizer, Bitcoin Magazine, Bukele stated, “Next week I will send to Congress a bill that will make bitcoin legal tender.”
Since a landslide victory in legislative elections last March, Bukele, a 39-year-old right-wing populist who came to power in 2019, has a strong majority of 56 out of 84 seats. This indicates that the bill will most likely pass.
El Salvador, according to Bukele, partnered with digital finance company Strike to figure out the logistics of the decision.
“Over 70% of the active population of El Salvador doesn’t have a bank account. They’re not in the financial system,” Strike CEO Jack Mallers said. “They asked me to help write a plan and that they viewed bitcoin as a world-class currency and that we needed to put together a bitcoin plan to help these people.”
El Salvador’s official currency is currently the United States Dollar.
Despite their fascination with bitcoin, central banks around the world have been hesitant to embrace cryptocurrencies due to their extreme volatility. After rocketing to a record high above $60,000 earlier this year, Bitcoin, for example, saw its value plummet by more than half. Other, less well-known cryptocurrencies are even more volatile, swinging up and down like seesaws, often in response to speculative or humorous tweets from Tesla CEO Elon Musk.
However, the rise in popularity of cryptocurrency has prompted the Federal Reserve to reconsider the dollar’s limitations, particularly in terms of payments and money transfers that can take days to complete. Transactions in Bitcoin are almost instantaneous.
Cryptocurrencies also do not necessitate the use of a bank account. Rather, they are stored in digital wallets. This could help people in poorer communities, such as many in El Salvador, but also in minority communities in the United States, gain better financial access.
Last month, Lael Brainard, a member of the Federal Reserve Board of Governors, presented a case for a secure, central bank-backed digital currency that could improve payment efficiency and expand financial services to Americans who are underserved by traditional banks.
Chairman Jerome Powell of the Federal Reserve announced in May that the central bank would issue a paper this summer outlining the board’s views on the benefits and risks of a digital US dollar.
Although cryptocurrencies such as bitcoin are digital, a Central Bank Digital Currency would differ from current cryptos in that it would be controlled by a central bank rather than a decentralized computer network.
