The First Nation-State Purchases Bitcoin to Save $400 Million Paid Yearly in Commissions
El Salvador’s Bitcoin law has come into force on Tuesday following its announcement in June, and it has officially become the first nation in the world to adopt the cryptocurrency as a legal tender alongside the US dollar.
Ahead of the big day, President Nayib Bukele said on Monday that they had bought 400 BTC worth about $20 million to facilitate the conversion of Bitcoin in US dollars. In a separate Twitter post, Bukele said the country plans to buy “a lot more” bitcoin.
In order to give the Bitcoin adoption a boost, the government is airdropping $30 worth of BTC to those who download their wallet Chivo.
— Dougi Drone (@DougiDrone) September 7, 2021
The digital currency is now acceptable in exchange for goods and services, and the government will accept it for tax payments.
Bukele has emphasized that this move will increase financial inclusion, investment, and economic development in the country.
Additionally, the idea is to make it cheaper to send remittances and save millions of dollars in transfer charges. In 2020, more than 2.5 million Salvadorans living abroad sent back about $6 billion, which is equivalent to 23% of the country's GDP.
According to a 2015 Central Bank study, over one-fifth of Salvadoran households rely on remittances to get by. And most of the money sent back to El Salvador last year was from the US, followed by Canada, Spain, and Italy. According to official data, remittance companies account for 61.4% of the total sum, while 37.8% comes from banking institutions.
“Our people pay $400 million a year in commissions for remittances,” the president wrote on Twitter in August. “That saving alone will be a huge benefit for our people (or at least for those who want it).”
So far, only 1 country in the world uses #crypto as legal tender. Just the beginning.
— CZ 🔶 Binance (@cz_binance) September 7, 2021
However, there have been protests against the move due to the fact that people do not yet know how to use cryptocurrency.
Additionally, in a now-deleted Twitter post, the President's legal counsel said in an interview, “Every business that refuses to use Chivo Wallet & refuses to do BTC transactions will be charged w/ breaches of law … there will be repercussions.”
However, the crypto community came out strongly against this with Nic Carter of Castle Island venture, and co-founder of Coin Metrics said the relevant Article 7 is “unnecessary,” adding, “I urge the Salvadorian leadership to reconsider it. A Bitcoin standard imposed coercively will not be sustainably adopted.”
USD is not mandatory in the U.S. Legal tender laws do not mandate use of a currency for everyday transactions. https://t.co/iK1gzJYyUA
— Jerry Brito (@jerrybrito) September 2, 2021
Article 7 of making Bitcoin a legal tender in the country states, “Every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service.”
This section makes accepting Bitcoin as a medium of exchange an obligation rather than a choice.
“We can celebrate sovereign adoption of bitcoin without embracing strong-arm tactics to impose it,” said Carter.