There, Strike founder Jack Mallers showed a video message from El Salvador's President Nayib Bukele, in which he announced that he would introduce a bill to introduce Bitcoin as an official means of payment. In today's post, we explain why El Salvador has chosen Bitcoin and what the law will contain.
Shortly after the video message, El Salvador already followed up with action: On 9 June 2021, the law was passed, the exact content of which can be seen here, for example. It is to come into force 90 days later and make Bitcoin the second official currency of the Central American country alongside the US dollar. The exchange rate between the two currencies is to be determined by the free market. The introduction as an official means of payment also means that all Bitcoin transactions will be tax-free in the future.
El Salvador's residents will also be able to pay their taxes with Bitcoin in the future. Bitcoin as an official means of payment also raises some new legal questions: Basically, other countries could now officially see Bitcoin as a foreign currency, which would also affect the tax treatment of Bitcoin in these countries.
Businesses must accept bitcoin payments from customers if it is technically possible for them to do so. Again, the government agreed to make technical options available to people, but without requiring them to use specific software or hardware.
Why has El Salvador now decided to take this step? Back to Bitcoin 2021 Miami: There, Jack Mallers, founder of the Lightning Network app Strike, explained that in El Salvador, 20,000 new people registered for the app per day in some cases; it even became the most popular app in the country within a short time. The reasons are obvious: according to official figures, around 70% of the 6.5 million inhabitants do not have a bank account and thus cannot participate in the international financial system. More than 2 million citizens live outside the country and send more than USD 4 billion home to their families every year, which accounts for more than 20% of the gross domestic product.
Most of these people rely on payment providers who often charge 10% or more in fees for international transfers. In addition, as a small country without its own currency, El Salvador is dependent on US policy and is at the mercy of the Fed's decisions. If, for example, the Fed prints more US dollars for internal subsidies, this helps the USA, but countries dependent on the dollar, such as El Salvador, mainly feel the loss of purchasing power through inflation.
As great as this news is for Bitcoin, critical voices were quickly raised. Some accuse Bukele of governing too authoritarianly, for example by making numerous dismissals in the state apparatus and appointing his own people. In one case, he also had the military parade in parliament during a vote on funding the armed forces.
However, there are also other opinions. As Christoph Bergmann describes here, for example, El Salvador, still scarred by civil war in the 1970s and 1980s, is plagued by corruption. In early 2021, Bukele's party won the elections with 73 per cent, and his own approval rating among the population is 90 per cent. Spending on education and infrastructure had also been greatly increased during Bukele's term in office. Thanks to investments in the health system and tough action policies, El Salvador has the lowest rate of covid deaths in Central America.
On this point, one can probably only form one's own opinion. Hopefully, Bitcoin will be able to help local people in the future and lead them to more financial inclusion and independence.