El Salvador is expected to become the first nation to accept Bitcoin as legal tender. For example, El Salvador’s President Nayib Bukele said in an announcement at the “Bitcoin 2021″conference that the bill to legitimize Bitcoin as legal tender is on its way.
“Next week, I will send a bill to Congress that makes Bitcoin a legal tender.“
The government of El Salvador is reportedly working with Strike, a Lightning Network payment platform, to work out the logistics of integrating Bitcoin into El Salvador’s financial system. Jack Mallers, founder of Strike, was also responsible for moderating the presentation.
El Salvador’s Sparse Financial System Has Room for Bitcoin
When asked about El Salvador’s historic decision to accept Bitcoin as a valid form of currency, Mallers pointed to the country’s lack of financial infrastructure:
“Over 70% of the active population of El Salvador does not have a bank account. They are not involved in the financial system. They asked me to help write a plan and that they see Bitcoin as a world-class currency and that we need to put together a Bitcoin plan to help these people.”
The move makes El Salvador the first country ever to make a non-fiat currency a legal tender. Interestingly, El Salvador does not have its own currency compared to most other sovereign nations – at least not anymore. After a civil war in the late 1980s, the country adopted the US Dollar as its official currency and abolished the Colon.
Bitcoin could provide stability and independence
However, this also means that the Central Bank of El Salvador cannot print its own currency. Other countries such as the US and China have begun to create their own central bank digital currencies (CBDCs) to mitigate the weakening of their fiat currencies by cryptocurrencies.
However, El Salvador’s unique economic position allows the nation to accept cryptocurrencies-freely, without causing harmful economic impacts.
Another reason for this move could be the nation’s over-reliance on the US dollar. While the dollar has provided economic stability to El Salvador for decades, recent fears of inflation – exaggerated or not – could negatively affect the country’s relatively small economy.
While bitcoin’s decentralized and limited nature makes it insensitive to inflationary forces, there is no doubt that the main cryptocurrency is volatile. Over the past two months, Bitcoin (BTC/USD) has dropped over 40% from its February highs.
With the fall in the value of the Turkish lira due to uncontrolled monetary policy, Bitcoin’s decentralization and scarcity could be the answer for many small economies like El Salvador.
Text credit: Bitcoinist
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