El Salvador Accepts Bitcoin As Legal Tender and Frames Policies To Attract Crypto Investment

The economic condition of El Salvador remains fragile. During the Covid 19 pandemic, the poverty levels increased considerably. By 2021, the figures returned to the pre-pandemic level. However, as of now, extreme poverty continues to affect the economy. The government faces liquidity challenges and has very few financial alternatives. This is the reason El Salvador accepts Bitcoin and now wants to foster sustainable economic growth by attracting more crypto investment. 

El Salvador Accepts Bitcoin As Legal Tender

In 2021, El Salvador was the first country to adopt Bitcoin as legal tender. This essentially implies that the businesses can accept it as a legitimate means of exchange. It also introduced a new form of payment and a digital wallet called “Chivo”. Citizens of El Salvador can partake in a $30 sign-up bonus in Bitcoin. Furthermore, the government also encourages Bitcoin enthusiasts across the globe to acquire citizenship. 

Features of Bitcoin as a Legal Tender in El Salvador

Bitcoin as a legal tender is a legally recognized money within the territorial jurisdiction of the country. However, it seems that Bitcoin has a co-equal status with the US Dollar in El Salvador. Therefore, the cryptocurrency Bitcoin is serving the economic functions of money alongside the American dollar. The online services accept cryptos and this is fully legal in the country. The only notable difference specific to El Salvador is that the use of Bitcoin is no longer limited to the speculative market. This is because the retail markets have also accepted the government’s initiative to mainstream Bitcoin. 

Bitcoin in El Salvador now can be used to pay debts without transactional limitations. The country will invariably allow Bitcoin as an accepted form of payment for retail goods and services. The accounting standards may continue to prefer the American dollar as a reference point, but gradually a system will arise that may prefer instant conversion of Bitcoin. 

El Salvador’s Freedom Visa Program

El Salvador is not only content with just accepting cryptos. It has gone a step further by encouraging investors to acquire the country’s citizenship and trade in cryptos. This is quite unprecedented in recent times. The program offers residency visas and citizenship to 1000 individuals committing to a $1 million investment in either Bitcoin or Tether. Moreover, the government also encourages these investors to create and cultivate an environment where they can work for the betterment of the socio-economic situation in El Salvador.

El Salvador Accepts Bitcoin, what are the benefits?

El Salvador is poised to gain a lot after accepting Bitcoin as a legal tender. Moreover, these potential benefits may encourage other countries to adopt it and resolve their economic problems. 

Decrease dependence on the American Dollar

El Salvador expects to reduce its dependence on its main fiat currency, the American Dollar. This may become a reality only if the Salvadorian law gives preferential treatment to accept Bitcoin as a store of value.

Inclusion of Underbanked or Unbanked People

El Salvador has high poverty rates and nearly 70% of its population does not even have a bank account. However, by accepting Bitcoin and Tether, a large section of the underbanked population may get easier access to financial services. Therefore, by easing access to financial services, El Salvador can combat poverty and boost economic growth. However, the country’s economic policies also need to be framed accordingly such that Bitcoins remain valuable to the masses. Fortunately, as of now, the government is keen to encourage cryptos like Bitcoins and Tether.

Faster International Transfers

Since cryptocurrency exchange platforms take less time compared to traditional payment methods, international transfers will inevitably become faster. It is a fact that over 20% of El Salvador’s GDP is only because of international transfers. The acceptance of Bitcoin will mean that a large part of the population will benefit from faster and less expensive monetary transfers. Before the mainstreaming of Bitcoin, the cost of remittances was 30 to 50% of the transfer value. Sometimes, there were many costs and difficulties involved in collecting fiat money. Fortunately, these problems will wither away by adopting Bitcoins. 

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Bottom Line

El Salvador has created history by accepting Bitcoin as a legal tender. The intentions of its government are also clear since it wants to promote Bitcoin and give it some form of co-equal status with the dollar. The country has faced chronic economic problems and it seems choosing Bitcoin is the right way to go. The adoption of this crypto may encourage many other countries to adopt it to resolve their economic problems. If this acceptance continues, then that day is not far behind when cryptocurrencies and fiat currencies will have the same legal standing. Therefore, these steps may increase the credibility of cryptos in the future.