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El Salvador is the first country in the world to approve bitcoin as legal tender

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Posted: Wednesday, June 9, 2021. 6:04 pm CST.

By Rubén Morales Iglesias: El Salvador becomes the first country in the world to approve cryptocurrency bitcoin as legal tender alongside the United States dollar, which is the present currency in the Central American country.

According to Salvadoran newspaper El Diario de Hoy, the pro-government’s representatives in El Salvador’s Legislative Assembly in the early hours of Wednesday approved virtual currency bitcoin as legal currency in El Salvador with 62 votes out of 84 despite opposition by political party ARENA.

But that shouldn’t be a surprise to anyone.

El Salvador has been a precursor when it comes to its currency. In 2001, President Francisco Flores dropped el colón in favour of the US dollar when the colón was being exchanged at 8.75 to one US dollar.

Back in 1892, President Carlos Ezeta changed the name of the country’s currency from el peso to el colón in honour of Christopher Columbus.

Now, El Salvador has paired bitcoin as legal tender alongside the US dollar.

Two days after president Nayib Bukele announced the plans to make bitcoin official tender in El Salvador, the Minister of Economy María Luisa Hayem presented the bill at the Legislative Assembly. El Diario de Hoy reported that ARENA was strongly opposed to the move claiming that the bill forces natural and legal persons to accept bitcoin as payment for the purchase of goods and services.

El Diario de Hoy said that according to the decree, the use of bitcoin will be “unrestricted with liberating power, unlimited in any transaction and to any title that public or private natural or legal persons require to carry out.”

The New Ideas party said bitcoin will not replace the US dollar. “It is only an added value,” argued deputy Héctor Sales of Nuevas Ideas.

The document reportedly states that the exchange rate between bitcoin and the US dollar will be decided freely by the market, that all prices may be expressed in bitcoin, and that all tax contributions can be paid in bitcoin.

El Diario de Hoy also reported that the price of Salvadoran bonds fell after Bukele announced his intention to legalize bitcoin as a currency

The newspaper also said the measure requires all businesses in El Salvador to accept bitcoin as a form of payment and that the obligations of the State, such as debts and pensions, will also be paid with this currency.

The bill said that the State will provide the means for users of bitcoin to carry out transactions and will also facilitate the automatic and instant convertibility between bitcoin and the US dollar.

Arguments against the bill said that 70 percent of El Salvador’s population does not have a bank account. To that end, even though, the bill said that Bitcoin must be accepted as legal currency in El Salvador, there will be exceptions.

The bill said that people who “notoriously and obviously do not have access to the technologies that allow transactions in bitcoin” will not be obligated to accept bitcoin in payment for goods and services.

But that, according to representative Rodrigo Ávila, from ARENA, is not going to be as easy as expressed by the law. He said according to the letter of the law, any person who owns a computer or a telephone will be legally bound to accept bitcoin for any transaction.

Additionally, any debt acquired before this law came into existence can be paid in bitcoin.

The Opposition representative, Anabel Belloso of the FLMN, said that bill was not studied sufficiently before it was approved, particularly since it the first of its kind in the world.

Ávila also said that economists say that virtual currency is “very volatile” and that there are great risks that it could lend itself to money laundering, drug trafficking and other financial crimes. He said that before moving on, expert economists in the cyber crime and technology communities should be consulted.

The New Ideas representatives paid no mind to those recommendations and said that it’s a new measure which will be followed by other countries.

“I have no doubt that the brightest minds in the country will support this process,” said New Ideas deputy William Soriano.

El Diario de Hoy said the law was approved just hours after the president of the Central Reserve Bank of El Salvador, Douglas Rodríguez, said on national television that the cryptocurrency bitcoin has “quite high volatility.”

“Volatility in bitcoin does exist, there is quite high volatility, but that also happens even in the dollar, even in the best currencies there is also volatility, there is that effect that it may go down or it may go up, it will not necessarily stagnate” Rodríguez said.

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