El Salvador has become the first country in the world to officially adopt a cryptocurrency as a form of legal tender.
A law was passed in the Central American nation on the 9th June allowing Bitcoin to be used in economic transactions throughout the country.
This means that Bitcoin can now be used as an official method of payment for the purchase of any goods and services, with prices also allowed to be shown in Bitcoin.
The current economy of El Salvador is highly reliant on transfer payments, hovering at around 20% of GDP for the last 20 years. Adopting Bitcoin as legal tender would make it much easier for Salvadorans abroad to send money back home. Another likely reason for the new law is that trading in Bitcoin may actually be far more financially inclusive than the traditional banking system. According to one report, 70% of the population does not have access to traditional financial services.
It is therefore hoped by the outspoken President Bukele that the Bitcoin law will increase economic activity within the country as well as attract foreign investment.
With the volatility of Bitcoin well-known, and the future of cryptocurrency highly unpredictable, the move to adopt as legal tender could be either a huge mistake or genius from the government of El Salvador. Only time will tell!
THINK LIKE AN ECONOMIST!
Q1. What is a cryptocurrency?
Q2. How could adopting Bitcoin as legal tender affect the economy of El Salvador?
Q3. Discussion: what do you think will be the future of cryptocurrency?
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