As of today, bitcoin is El Salvador's official currency alongside the US dollar, after the Central American country became the first to adopt the cryptocurrency as legal tender. Three minutes before midnight local time, the country's president Naid Bukele tweeted that the country was going to "make history" with the move, after earlier confirming that it had purchased 400 bitcoins, equivalent to about $20.9 million at today's prices.
Supporters of the move argue that it will be cheaper and easier for migrants to send money home to El Salvador, which is important given that such remittances account for more than 24% of the country's gross domestic product, according to the World Bank. There are also hopes that the move could improve citizens' access to financial services. The CEO of Strike, the digital finance company that helped with the logistics of the new law, said that more than 70% of the country's "active population" currently does not have a bank account.
El Salvador has been preparing to support cryptocurrency for months. In August, they began installing 200 ATMs across the country where citizens can make exchanges between the country's two official currencies. It also launched its own digital wallet called "Chivo," which provides users with $30 in bitcoin conversion to encourage adoption of the cryptocurrency.
But there are concerns that the adoption of such a historically volatile currency could hurt Salvadorans and threaten economic stability. Bitcoin hit an all-time high of more than $60,000 in April before losing nearly half its value in a collapse over the summer. The law contributed to the decision by ratings agency Moody's to downgrade El Salvador's debt rating, and the IMF also warned of its potentially destabilizing impact.
The law means that citizens will be able to pay taxes in bitcoin and stores will be able to price in the digital currency. Money exchanged for the currency will also not be subject to capital gains tax. The move makes El Salvador the first country to officially have bitcoin on its balance sheet and hold it as part of its reserves.
Source: cnbc, cnn, nayibbukele