El Salvador recently became the first country in the world to formally adopt Bitcoin as legal tender after the approval of President Nayib Bukele's proposal to embrace the cryptocurrency.

The Latin American country’s Congress voted 62 out of 84 possible votes in favour of President Nayib Bukele’s proposal.

As of now, El Salvador uses the US dollar as legal tender and Bitcoin will become legal in 90 days.

What it Means for El Salvador

El Salvador uses the US dollar as a legal tender as it doesn’t have its own fiat currency. Bukele said the adoption of Bitcoin would bring financial inclusion, investment, tourism, innovation, and economic development.

Bitcoin’s use as legal tender alongside the US dollar will come into effect in 90 days. The Bitcoin/dollar exchange rate will be set by the market.

After this, Salvadorans will be able to pay their taxes in Bitcoin. “Every economic agent” will have to accept the cryptocurrency as payment unless they lack the necessary technology.

“This will generate jobs and help in financial inclusion of thousands outside the formal economy…,” Bukele, a former marketing executive, said.

Bukele added that Bitcoin could make it easier for Salvadorans living abroad to send home remittances, which was $6 billion in 2019 -- a fifth of the country’s Gross Domestic Product (GDP).

How World Sees it

According to The Guardian, analysts say the country’s experiment would be followed closely elsewhere. “This could be a key catalyst for Bitcoin over the next two to three years.”

Mint has also quoted some experts that El Salvador’s move has changed the fundamentals of the Bitcoin market, even as it is expected to address the concerns of many individuals.

However, the most common objection regarding Bitcoin is its backing by governments and its volatility.

“These complaints are valid only if you compare cryptocurrencies to the top 30-40 currencies. There are 14-15 countries, which don’t have their currency and use the US dollar. As a result, Bitcoin or any other cryptocurrency is good for them as they are dependent on the US monetary system and policy," Mint quoted Ajeet Khurana, founder of a crypto think tank Genezis Network, as saying.

Impact on India

Experts in India say here the approach towards crypto is different. “We don’t see it as a legal tender but as an asset class. Indian investors have shown their faith in crypto even during the massive price fluctuations because they have an investment horizon of two-three years," Mint quoted Shivam Thakral, CEO of BuyUcoin, as saying.

Meanwhile, the investors in cryptocurrencies are eagerly waiting for central bank digital currency (CBDC) in India to open up new avenues of growth for the digital asset industry.

Guarded Crypto Reaction

After El Salvador’s historic move, the prices of Bitcoin saw only a minor uptick.

The world’s biggest cryptocurrency was trading 9.25 percent higher at $36,698.05 around 11.16 am IST on Thursday, as per coindesk.

Experts feel there is still fear of the unknown in the cryptocurrency market.

First Published:Jun 10, 2021 7:20 PM IST