El Salvador became the first country in the world to adopt bitcoin as a legal tender, this after the country’s new Legislative Assembly, controlled by President Nayib Bukele’s party, New Ideas, approved the Bitcoin Law. However, what does this represent for the cryptocurrency and for the country’s economy?
“Having bitcoin provides a way to protect developing economies from possible impacts (derived) from the inflation of their fiat currency,” argued Bukele around this legislation, whose objective, according to its promoters, is to increase financial inclusion in a country where 70% of the population does not have a bank account.
According to Javier Molina, an analyst at the firm eToro, this decision may represent “a certain economic independence, as long as that currency is used as a unit of account, as a reserve of value and as a form of exchange. If this does not occur, no it’s going to be a benefit. “
According to the so-called Bitcoin Law, only this cryptocurrency may be used “in any transaction and any title that natural or legal or private public persons require to carry out.” The draft gives a period of 90 days for the Salvadoran central bank and the financial regulator to implement the regulations to make the use of bitcoin official.
This means that in the Central American country, prices can be displayed in bitcoin, it will be possible to pay tax contributions in digital currency and transactions through this cryptocurrency will have tax benefits. In this regard, it is worth mentioning that Bukele said last Sunday that there will be no “capital gain taxes for bitcoin.”
Likewise, the legislation will oblige all economic agents to “accept bitcoin as a form of payment,” however, it points out that it will make exceptions for those who notoriously “do not have access to the technology” that allows transactions to be carried out.
In this sense, Bukele said on Monday that a “satellite infrastructure” will be built in the country for the use of bitcoin in rural areas with connectivity problems, in addition to that his initiative will contribute to make his nation “a model for the world.” .
On the other hand, the law indicates that the exchange rate between bitcoin and the dollar – the official currency in this country, which will remain ongoing – will be freely established by the market, in addition to the fact that all prices may be expressed in bitcoin. . In this regard, Bukele assured that the regulations are “well structured so that they have zero risk.”
The president also mentioned that the government will guarantee automatic and instant convertibility to the exact value in each transaction, through the creation of a trust in the Development Bank of El Salvador (Bandesal).
According to President Bukele, one of the uses that arise for the cryptoactive is the transfer of money remittances that Salvadorans send from the United States, in order to avoid the payment of commissions, in addition to the operation being done in a way almost immediate.
However, Carlos Carcach, professor at the Higher School of Economics and Business of El Salvador, commented to the AP agency that it is unnecessary to “give the character of legal tender to something like bitcoin”, since some Salvadorans already use it as currency. payment as well as other options.
The specialist also indicated that a problem related to this currency will be subject to the “external volatility it presents”, since “there is a risk of becoming someone rich and the next day being poor”.
Molina agrees on this, commenting that “you have to be realistic. At the moment (bitcoin) does not offer an alternative for daily use”, as merchants, he exemplifies, will not want to carry out transactions if the value changes day by day.
According to a statement to the, senior advisor to the former director of the International Monetary Fund Crhistine Lagarde, the greatest risk of cryptocurrencies is that “they can threaten the monetary sovereignty of any country.”
This premise is based on the expert that if central banks do not know how much money has been spent or transferred to their country, “that has enormous implications for your monetary policy and on how you measure inflation and interest rates. Even how legislators and governments define their fiscal policy ”.
Although the eToro analyst states that one must be patient in the face of cryptocurrencies, he accepts that if their use is spread among the populations of more countries, the variations in their value will be less, since “supply and demand will reach equilibrium and when that happens, the volatility of bitcoin will disappear and it will resemble that of the dollar, the euro or the Mexican peso. “
