New Delhi (CoinChapter.com) — In a first for Bitcoin, El Salvador took steps to make the country’s flagship crypto a legal tender. President Nayib Bukele announced he would soon propose a bill to Congress for the same.
The Central American nation will become the first in the world to accept cryptocurrency as legal currency formally. Hours after El Salvador’s announcement, Paraguay has also hinted at a project involving PayPal and Bitcoin. However, Bitcoin prices have remained in the $35,000 to $37,000 band since June 5. At the time of writing, BTC was trading at $36,570.
Reasons Behind The Decision
President Nayib Bukele said in a video message during the Bitcoin 2021 Conference in Miami that Bitcoin could propel the El Salvador economy in the right direction, starting by creating more jobs for its people.
In a series of tweets, President Bukele explained his reasons for the move. One of the reasons he mentioned was financial inclusion for about 70% of the populace with no bank accounts.
The decision to legalize bitcoin will also attract more investment, on account of a growing number of crypto investors. With a market cap of $685 billion, BTC can have a major impact on the country’s economy. According to the President, with just 1% of Bitcoin investment, the GDP will increase by 25%.
Remittances from citizens who work overseas form about 22% of the GDP. President Bukele pointed out the contribution of remittances, saying BTC will benefit from the potential 10 million new users. Last year, the country received around $5.9 billion as remittances. He further said that Bitcoin would serve as the medium of choice for transferring remittances from all around the world.
BTC will help curtail the losses due to intermediaries’ fees during money transfers. As such, the President’s decision will help millions of low-income families enjoy a better quality of life.
Who Is President Nayib Bukele?
Mr. Nayib Bukele is the 46th president of El Salvador. He won by an overwhelming majority in 2019. As a result, he enjoys immense popularity in his country. However, the international community has taken issue with some of the president’s policies.
In May 2021, President Bukele seized control of the country’s Supreme Court. His party voted to fire and replace the top five judges of the court. The Attorney General was also replaced after he voiced his disapproval of the move. When the international community raised concerns, the social media savvy President Bukele tweeted, ‘We are cleaning house . . . and this doesn’t concern you.’
The relations between the USA and El Salvador have also soured. President Biden led government plans to target the key issue behind illegal migrants- poverty, insecurity, and corruption. He announced a $4 billion package for El Salvador, Honduras, and Guatemala. However, some of El Salvador’s decisions have been viewed as a threat to democracy by the US.
Massachusetts Representative Jim McGovern had some strong words to say about President Bukele’s decision to replace Supreme Court judges. The United States decided to discontinue aid to Salvador’s national police due to President Bukele’s actions.
From being the Mayor of San Salvador in 2015 to the President in 2019, it is impossible to categorize Mr. Bukele’s journey as strictly Left or Right-wing. There are allegations of using intimidation to remove High court judges.
However, the business community of El Salvador remains a voice of dissent against the government. Chief among them is the National Association of Private Enterprise, also known as ANEP. They termed the Supreme Court incident as a ‘self-coup against the judiciary.’
El Salvador’s Economy
The economy of El Salvador took a hit due to Covid-19. Dependence on remittances hit the economy hard. Though the country was the fastest in Central America to adopt strict measures, the GDP reduced by 8.6% in 2020. The current account deficit also shrank to 1.4% of GDP. Diminished economic activity, decreased aggregate demand, and reduced remittances are the main reasons behind the decline.
El Salvador’s economy is expected to grow by 4% in 2021. Also, the Fiscal deficit is speculated to go down. The move to adopt Bitcoin may well boost the economy beyond the calculated growth. Crypto supporters around the world have welcomed the move. Tweets from Mr. Anthony Pompliano and Mr.Justin Sun applauded the decision. Hopefully, Bitcoin will rally stronger, riding on this news.
A Delhi-based Markets writer, I did my bachelor's in engineering with major in electronics and communications. I first heard of bitcoin while writing an article about blockchain technology a few years back, and have been following it ever since. Bitcoin may well be current big thing happening in the finance industry, and it feels like the right time to join the crypto bandwagon.