The tiny Central American country is about to become the first nation to adopt Bitcoin by taking the bold step to recognize BTC as a legal tender and national currency. But it won’t be the last.
El Salvador’s President Nayib Bukele has taken an important step when he announced during the Bitcoin 2021 Conference in Miami that his government intends to pass a bill to make Bitcoin a legal tender in the country.
El Salvador is a country that suffers from over 70% of its population being unbanked, while remittance accounts for a $6 billion a year industry as expats send money home to their families.
Today’s system for remittance is however a slow and ridiculously costly process where up to 20% of the money sent back home are lost to fees and middlemen taking their cut along the way. President Bukele aims to fix this problem by instead introducing Bitcoin as a means of exchange for this remittance sector.
Given that Bukele controls 56 out of the 84 seats in the country’s parliament (Asamblea Legislativa) through his party Nuevas Ideas, his bill is likely to become law.
This would make El Salvador the first nation in the world to recognize Bitcoin as a national currency and legal tender.
This move cannot and should not be understated.
Its implications on El Salvador’s local economy, the worldwide ramifications for other countries to follow suit and adopt the Bitcoin standard, as well as for the global adoption of Bitcoin and cryptocurrencies, are far-reaching and even unimaginable at this point in time.
El Salvador replaced the local currency, the Salvadoran colón, in 2001 with the US dollar, a move that is not uncommon for countries and regions with a weak local currency and very strong trade ties with the US. However, as the US Federal Reserve (Fed) unabatedly prints money, smaller countries whose economic system is tied to the US dollar suffer greatly.
With this in mind, President Bukele’s proposal emphasises that the US Fed’s actions to increase the US dollar monetary supply by 32% in one year as a result of quantitative easing amid the corona pandemic, is one of the main reasons behind the move to embrace Bitcoin, explicitly stating:
“Central banks [like the U.S. Federal Reserve] are increasingly taking actions that may cause harm to the economic stability of El Salvador…in order to mitigate the negative impact of central banks, it becomes necessary to authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank…”
The motivation behind the move to recognize Bitcoin as a legal currency is therefore much rooted in the fact that fiat currency inflation rates are out of control, especially in regards to the US dollar.
The finite supply of Bitcoin, coupled with its decentralized nature, ease of use and the lack of government ability to confiscate BTC from its holders, will likely play a major role as other countries consider a similar move to El Salvador as a way out of the fiat inflation trap.
Attracting Crypto Entrepreneurs
Bukele also emphasized that El Salvador will have no capital gains tax for Bitcoin since it will become a legal currency. Additionally, crypto entrepreneurs will reportedly be receiving immediate permanent residence in El Salvador.
These two factors may turn out to have a significant impact on the future of the country as a potential Bitcoin hub, as Bitcoin and crypto-focused businesses and entrepreneurs may choose to switch part of their operational base to El Salvador simply because it makes sense for their bottom line while enjoying a friendlier regulatory climate.
Opportunity To Transform El Salvador
Attracting investors with a long-term vision will however be crucial for El Salvador’s Bitcoin bet to be successful, so the country simply does not turn into a “crytpo tax haven”.
El Salvador will need to learn how to deal with the large daily BTC volume, transactions and expand current Bitcoin infrastructure on the ground.
The big opportunity is to transform the government into a digital government with the massive use of blockchain solutions to gain scale and reduce costs. By inrceasing efficiency and lowering costs throughout the economy, there is more money left to be invested in health care, education, technology initiatives and other essential government services.
The Bitcoin move therefore has the potential of turning El Salvador into a blockchain technology hub that generates employment and income for the local population.
El Salvador might not even be recognizable to most on the world map given its tiny size and relative insignificance in international affairs, as displayed graphically below.
But that little orange dot in Central America has the recipe and ingredients to kick-start a global expansion of Bitcoin as a legal tender and currency. Many more countries, particularly those in a similar situation with high rate of unbanked, huge turnover in remittance and overall underdeveloped economies, are likely to follow in El Salvador’s footsteps and explore taking similar measures regarding deeming Bitcoin an official currency.
We are already seeing initial signs of such an early Bitcoin tidal wave, as politicians from Paraguay, Brazil, Mexico and Argentina among others are openly showing support for such a move.
As more countries adopt Bitcoin as a legal currency to escape the impending fiat inflation abyss, the global adoption of both Bitcoin and other prominent cryptocurrencies is likely to witness an expansion not experienced to this date.
This impending expansion comes at an opportune time for the industry. Today there are simple, useful and powerful tools for common folks to hold their Bitcoin and crypto such as Klever app that didn’t exist a few years back, when holding self-custody over your crypto was a lot more difficult for the average user than it is today.
In conclusion, the positive implications of El Salvador adopting Bitcoin as a legal tender on its local economy, the worldwide ramifications for other countries to follow suit and recognize Bitcoin’s status as a currency, and for the global adoption of Bitcoin and cryptocurrencies cannot be understated.
Bitcoin and crypto has the inherent potential to empower individuals to truly own their money without the interference or influence of third parties, enabling millions to be part of a thriving decentralized economy with limitless possibilities.
El Salvador might just become the First Bitcoin Nation, but it will surely not be the last.
Klever, with origins in Brazil and over 3 million global users today, will be there throughout this adoption process to support El Salvador and other countries in their pursuit for fairness, inclusion, transparency, growth and financial independence for its citizens.
Director of Communications at Klever