El Salvador will become the first nation to accept Bitcoin as legal tender. In an announcement made today at the Bitcoin 2021 conference, El Salvador’s President Nayib Bukele said that the bill to legitimize cryptocurrency as legal tender was underway.
“Next week I will send a bill to Congress that will make Bitcoin legal tender,” he said.
The government of El Salvador is reportedly working with Strike, a lightning network payment platform, to resolve the logistics of integrating Bitcoin into El Salvador’s financial system. Jack Mallers, founder of Strike, was also in charge of making the presentation.
El Salvador’s sparse financial system leaves room for Bitcoin
When asked about El Salvador’s historic decision to accept Bitcoin as a valid form of currency, Mallers pointed to the nation’s lack of financial infrastructure:
“More than 70% of the workforce in El Salvador does not have a bank account. They are not in the financial system. They asked me to help them write a plan and that they considered Bitcoin to be a first class currency and that we should come up with a Bitcoin plan to help these people.
This measure makes El Salvador the first country in history to make a non-fiat currency legal tender. The interesting thing is that, compared to most sovereign nations, El Salvador doesn’t have its own currency, at least not anymore. After a civil war in the late 1980s, the country introduced the US dollar as the new official currency and abandoned the Colon.
Bitcoin could bring stability and independence
This means that the central bank of El Salvador cannot print its “own” currency. Other countries, such as the United States and China, have started creating their own central bank digital currencies (CBDC) to prevent cryptocurrencies from weakening their fiat currencies.
However, El Salvador’s unique economic position allows the nation to freely accept cryptocurrencies without causing detrimental economic implications.
Another reasoning behind the move may be due to the nation’s over-reliance on the US dollar. Although the dollar has provided economic stability to El Salvador for decades, recent inflation fears – exaggerated or not – could negatively affect the country’s relatively small economy.
With the value of the Turkish lira plummeting due to runaway monetary policy, decentralization and a shortage of Bitcoin could be the answer for many small economies like El Salvador.