Abandoning monetary independence through the issuance of one`s own currency entails costs, in particular the loss of the ability to adapt monetary policy to local economic conditions. El Salvador already accepted it when it introduced the dollar. The cost would be even higher if a currency as unstable as Bitcoin were the only national currency. But President Nayib Bukele has instead decided to designate both Bitcoin and the dollar as legal tender. The logic behind this decision is surreal. In 2001, El Salvador`s Monetary Integration Act established a fixed exchange rate between the United States dollar and that country`s monetary unit, the colonist. Although the colon remains technically legal tender, it is no longer in circulation and is therefore rarely used today. The World Bank and the International Monetary Fund (IMF) view El Salvador`s adoption of Bitcoin as a potential prime target for money laundering and other illicit financial activities. In fact, Bitcoin and its other cryptocurrencies were born out of an anarcho-libertarian distrust of central banks.

It is true that many central banks, particularly in developing countries, have devalued their currencies in the past. But the introduction of Bitcoin as legal tender makes little sense to El Salvador. El Salvador is the first country in the world to make Bitcoin cryptocurrency legal. There is one function that cryptocurrencies seem to fulfill: to facilitate illegal transactions. Needless to say, this is not a use that should be encouraged. Even worse in terms of overall well-being, “mining” cryptocurrencies like Bitcoin, which rely on blockchain technology to verify transactions, requires surprisingly large amounts of energy, harming the environment. President Nayib Bukele says the legalization of Bitcoin will help many Salvadorans, about 70 percent of whom do not have a bank account, make the transition to the formal economy. In particular, he expects this measure to make it cheaper and faster for citizens to receive remittances from abroad. Remittances were an important source of income for his heavily indebted country. In September 2021, El Salvador became the first country to make Bitcoin legal, forcing all businesses to accept cryptocurrency. In an attempt to popularize and regulate its use, the government has given citizens financial incentives to download a special cryptocurrency app.

Bukele had previously suggested that legalizing bitcoin would boost investment in the country and help the roughly 70 percent of Salvadorans who don`t have access to “traditional financial services.” Also, many Salvadorans had no idea about Bitcoin when they discovered that their country was considering making it legal. A survey of about 1,300 Salvadorans conducted by the Central American University, which led to its introduction, showed that only about 10% of respondents fully understood cryptocurrency. Alejandro Molins, who works at Athena Bitcoin and whose job is to get traders in El Salvador to download and use the Chivo wallet, told the rest of the world that his own mother has not yet signed up for her Chivo wallet. When El Salvador introduced virtual currency as legal tender, the government released a new digital wallet app that gave $30 (£22) in Bitcoin to each citizen. More than 200 new ATMs have also been installed across the country. Cryptocurrencies are a confusing entity, but accepting them as legal tender is the strangest and most disturbing aspect of all Many aspects of cryptocurrencies are baffling, including the success of a joke like Dogecoin. But El Salvador`s introduction of Bitcoin as legal tender is perhaps the strangest and potentially disturbing example of all. The board directors have now “asked the authorities to limit the scope of the Bitcoin law by removing Bitcoin`s legal tender status,” he said in a statement. As a result, the Bukele government was excluded from international capital markets. The usual way out of this debt would be multilateral credit. But thanks to the Bitcoin Act, Bukele was reprimanded by the International Monetary Fund. In late January, the organization warned him to remove Bitcoin as legal tender.

Bukele responded on Twitter with a Simpsons meme. A recent survey by the Universidad Centroamericana José Simeón Cañas, a Jesuit college based in El Salvador, found that 67.9% of people disagreed with the decision to legalize Bitcoin Bitcoin. Many respondents said they don`t know how to use cryptocurrency, according to the survey. The International Monetary Fund (IMF) has called on El Salvador to reverse its decision to legalize bitcoin. The Daily Mail. “The First Bitcoin Nation: The Government of El Salvador buys 400 Bitcoins worth an estimated $21 million, as it is the first country to accept digital currency as legal tender,” (accessed September 7, 2021). Of course, as in the rest of El Salvador, Bitcoin would be legal tender. But the crowd roared loudest when Bukele presented other incentives. Residents, he said, would pay no income tax, no capital gains tax (“Invest here, make as much money as you want,” he said), no property tax, no payroll tax and no council tax.

Bitcoin was released on the 7th. It will officially become legal in El Salvador in September 2021, making it the first country to introduce the currency. This decision made the Central American country the first national experiment in terms of using the often volatile currency, which is becoming increasingly popular with many investors and speculators around the world. The U.S. dollar will remain the country`s other main medium of exchange. In 2001, El Salvador introduced the U.S. dollar as legal tender to ensure the monetary stability that the country`s national currency, the colón, had not achieved in the past. The reform has worked: the country`s annual inflation rate, which was well over 10% between 1977 and 1995, has fallen considerably since the introduction of the dollar. It has been below 2% since 2012 and close to zero since 2015 – a rarity in Latin America. “It`s not just an idea, but it would actually be a legal municipality, with a mayor and everything,” he said.

When El Salvador officially legalized Bitcoin in September 2021, José Bonilla was one of the first citizens to sign up for a government-backed digital wallet that allows anyone to use cryptocurrency. The 23-year-old Salvadoran, who runs a shoe store with his family in the tourist resort of Concepción de Ataco, was eager to try the technology. He had heard that it would reduce costs and speed up payments. El Salvador this month became the first country to adopt a cryptocurrency — in this case, Bitcoin — as legal tender. I say the first one because others might follow. But they should think twice, because the idea is very dubious and could be economically dangerous, especially for developing countries. The President of El Salvador, Nayib Bukele (here at a press conference in May 2020) led efforts to make Bitcoin legal in his country. Yuri Cortez / AFP via Getty Images Hide caption Some observers see a strange irony in the Salvadoran government`s decision to launch a digital currency designed largely to circumvent traditional controls that governments exert on money.

Others fear that El Salvador could be used as a test object to advance the cryptocurrency promoters` agenda. “Before [Bukele] made the Bitcoin bill, he wasn`t very well known. Today, he is by far the most famous leader in Central America,” Gladstein said. “He puts his reputation into it.” Interviews with dozens of Salvadoran citizens, economists and technology developers reveal flaws in the project.