In the final hours of Miami’s 2021 Bitcoin conference that ended on Saturday 5th June, El Salvador president, Nayib Bukele, announced in a pre-recorded video that he was going to present a bill in the country’s congress that will seek to make Bitcoin a legal tender alongside the US dollar in the country.
El Salvador is one of the few countries around the world that uses the US dollar as its national currency.
Bitcoin as a legal tender in El Salvador would have far-reaching effects in the world of cryptocurrencies
Though one of the smallest countries in the world, El Salvador adoption of Bitcoin as a legal tender would trigger a similar effect as when Microstrategy announced it had purchased its first bitcoins. Immediately Microstrategy announced it had added BTC into its treasury, there was a domino effect that led to the largest Bitcoin adoption in history as companies like Tesla rushed to also take a share of the cake.
To make the long story short, if Nayib Bukele’s bill goes through Congress and Bitcoin is adopted as a legal tender in the country, it could also trigger widespread adoption of Bitcoin as legal tender by other countries.
Bitcoin is currently still down as a result of a string of events including the crackdown in China and Elon Musk’s break up with the digital currency.
To begin with, Bitcoin is already an established blockchain the infrastructure has spread out throughout the world making BTC an easy option for countries compared to creating their own centralized central bank digital currencies like the digital Yuan, or the digital dollar.
The El Salvador president also went ahead to point out through his Twitter handle that going by the market cap of bitcoin that is more than $680 billion, El Salvador’s GDP would grow by 25% if only 1% of Bitcoin’s market cap is invested in the country.
How did El Salvador end up using the US dollar in the first place?
Towards the end of the 19th century, El Salvador’s national currency, the colón, had become hyperinflated and was collapsing.
In a move to save the country’s economy, the US dollar was declared a legal tender and the colón was slowly phased out. Since that time the US dollar has been the national currency in the country.
However, only about 30% of the El Salvador population operate bank accounts, which makes it extremely expensive for Salvadorans to make remittances in fiat currencies. Most of the remittance is done through third parties.
In a tweet, Bukele, the president also said that if the bill to make Bitcoin a legal tender in the country goes through, it would make it cheap and easy for those Salvadorans living abroad to send money back home.
Besides, remittances, Salvadorans would also be able to use bitcoin to settle debts and allow banks in the country to accept bitcoin deposits and also give out bitcoin loans.
Since El Salvador already made the US dollar its national currency and scrapped its original national currency, there is little to lose by introducing another legal tender in the country that will allow people to freely choose which currency to use.