Image: Karolina Grabowska

During this weekend’s Bitcoin 2021 conference, El Salvador President Nayib Bukele announced that he would be introducing legislation making his country the first in the world to accept bitcoin as legal tender. Interest in the cryptocurrency was evidently high in the Salvadoran Congress, as Bukele confirmed this morning that his proposal had quickly passed by a significant majority: 62 out of 84 votes. According to a copy of the legislation shared by Bukele, El Salvador’s new bitcoin law aims to regulate the premier cryptocurrency as “unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out.”

Prices can now be shown in bitcoin, tax contributions can be paid with the digital currency, and exchanges in bitcoin will not be subject to capital gains tax. […] The exchange rate with the U.S. dollar “will be freely established by the market,” according to the proposed law. El Salvador’s current official currency is the U.S. dollar.

Sources: Nayib Bukele, CNBC

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5 Comments

  1. I’m curious on how they plan to implement this.

    Me too. The violent fluctuations in value that all cryptocurrencies suffer from has to make it difficult to keep up with price setting.

    Isn’t there biblical issues with a cashless society?

    I don’t know about the bible, but economies generally depend on FIAT currencies so that their central banks can moderate things. If the economy is at risk of overheating, raise interest rates, and reduce money supply. If the economy is entering a recession, increase money supply, and lower interest rates.

    Also, economies depend on slow steady inflation at about the 2% level. Have it go too low, or turn negative into deflation (like with cryptocurrencies, if they gain widespread adoption, as especially with a mature crypto like Bitcoin, it is difficult enough to mine, that in an economy wide scale demand for it is going to outpace supply resulting in rising value, and thus deflation) and it could have very negative economic impacts.

    By doing this they are giving up a lot of control over their economy, and potentially inviting a deflationary disaster.

    FIAT currencies when managed poorly can result in hyperinflation and other big problems, but when managed responsibly are pretty much required for the modern economy to function properly.

    That said, just because you have a FIAT currency does not mean it has to be cash based. There are many countries (Sweden seems to be leading the pack) where cash is becoming increasingly unpopular, as people use digital forms of payment. The real problem here is that as more and more businesses stop accepting cash, like they have in Sweden, it might leave the elderly and other less technically inclined, as well as the poor without good access to electronic devices out of the economy and cause them great hardship. This might not be a huge issue in Sweden where they have a robust social safety net, but here that could be quite different.

    It was funny, when I was in Sweden 2 years ago I was in a bar, and this 20-something girl walked in and sheepishly asked "Uh.. Do you… Do you accept cash?" It was like she was ashamed of even asking. Lots of businesses had signs like this in their windows, notifying customers that they did not accept cash:

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