Bitcoin as legal tender in El Salvador: how will it work?

The scoop goes to a small country in Central America. In El Salvador, it should soon be possible to pay for everything with bitcoin, the digital ‘cryptocurrency’ that seems to be gaining popularity worldwide. On Wednesday night, 39-year-old President Nayib Bukele sent a bill to parliament to make bitcoin legal tender. It was adopted by a large majority.

The current currency of the country, the US dollar, will also remain valid, but soon the ice cream man on the street will also have to accept payment in bitcoin, as will public authorities such as the tax authorities. A 90-day transition period is built into the adopted law, which aims to prepare the country for it.

Bukele’s motives sound noble. In poor El Salvador, 70 percent of the population has no access to traditional payment services, according to the text of the law. They soon will, provided those people have an internet connection. For those who find it complicated, the state organizes courses. They must ensure that a lack of digital skills is not a reason for exclusion.

Intake at the convention

In addition, the embrace of bitcoin would be a godsend to the many El Salvadorians who earn money in the United States and send this money to relatives in the home country on a monthly basis. Transfer is not free at the moment, there is a commission on top. A person who regularly sends a small amount home from America sees a portion of his earned money disappear into the pockets of American banks that make that transaction possible. With bitcoin there is no such commission, the cryptocurrency works decentralized without the intervention of a bank.

In this light, the new law is good news for the country’s population. Elsewhere in the world, bitcoin enthusiasts are also happy. They see it as a big step towards a world where everyone can pay with digital currency. There are still many questions about how it will work in practice. Not least because it is an unprecedented step.

Economy Minister Miguel Kattan is not particularly worried about it. He said at a press conference that a small part of the population already pays with bitcoin. Even for pupusassmall pancake-like street snacks.

Sell ​​twice as many pupusas?

How does a payment method whose value can fall or rise by 20 percent in one day work? A bitcoin is now worth a little more than half of the record in April (more than $60,000 then, compared to about $34,000 now). A pupusa seller who gets paid his turnover in bitcoin suddenly has to sell twice as many snacks in such a price drop in order not to suffer financially. President Bukele recognizes that risk. His government guarantees that anyone can instantly exchange bitcoins for dollars. The National Development Bank manages $150 million in a specially created account to absorb exchange rate risks.

And then the question is what the International Monetary Fund (IMF) thinks about this. El Salvador is negotiating a $1.3 billion bailout package to ease the burden of budget deficits and debt, Reuters news agency reported earlier this year. The introduction of bitcoin as legal tender, with all the uncertainties it entails, could intensify discussions with the IMF on this, experts told Reuters.