As El Salvador prepares to adopt Bitcoin
as legal tender, let’s take a look at how things currently stand in this Central American country. Sponsored
as legal tender on June 9. Then last month, Bukele announced that the adoption of the new law would take place on September 7.
This means that starting tomorrow, citizens will be able to make purchases, pay taxes and buy property using Bitcoin. Additionally, under the law, anyone with access to the technology will have to accept Bitcoin as a payment method. However, El Salvador’s three pages of government regulations do not mention any penalties for not complying with this law.
Pros and Cons
Proponents argue that such a move will promote financial inclusion for those without bank accounts. Additionally, it will facilitate access to a potentially high-yielding asset. Another important argument is that the bill will reduce the cost of remittances, which account for a quarter of the country’s GDP. Many countries in the region are eagerly waiting to see if everything goes well. According to the president of the regional development bank, if it does, many will begin to emulate El Salvador.
But critics believe that when the price comes down, the plan could affect poorer Salvadorans the most. The list of potential problems is long: from raising costs for banks and insurers, to providing opportunities for money laundering, to potentially threatening fundamental economic stability. The credit rating agency Moody’s, for example, downgraded the country’s debt rating in part because of the bill. The World Bank refused to help El Salvador in the process of passing the law, while the IMF warned of the many problems the new law raises.
Salvadorans skeptical of new law
Unfortunately for the government, polls show that most Salvadorans are against the plan. One poll showed that 7 out of 10 citizens even want the law repealed. Earlier, a citizens’ group in El Salvador, led by opposition politician Jaime Guevare, filed a lawsuit against the country for accepting bitcoin as legal tender. There have also been protestsin the country against the passage of the law.
Meanwhile, El Salvador is taking several steps to improve the adoption of bitcoin. For example, it is introducing a digital p
Bitcoin ortfel named “Chivo”. All adult citizens that register with the government wallet will receive an airdrop of $30 in BTC. Chivo ATMs are also isntalled in the country, which will allow consumers to buy Bitcoin or convert it into cash. In this case, commissions will be covered by the country’s government.
These initiatives and Chivo’s conversion capability are backed by a $150 million fund approved this week. However, some economists question whether it will be large enough should massive demand arise. A potential drop in Bitcoin’s price could then put the government under more fiscal pressure. Torino Capital wrote in a note:
If, for example, taxes are paid in cryptocurrencies while spending remains primarily in dollars, there would be significant pressure on the foreign exchange market, as well as on international reserve levels.
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