El Salvador Became the First Country in the World to Legalize Payments in BTC
El Salvador's Congress promptly approved a bill to use the world's main cryptocurrency as legal tender. 62 out of 84 deputies voted in favor.
The bill obliges every organization in the country to accept bitcoin as payment for goods, works and services. It also allows the use of the first cryptocurrency to pay taxes and excludes it from the list of taxation objects for capital gains.
Despite warnings from the International Monetary Fund about the riskiness of such a decision and the possible refusal to provide a 1 billion loan, the approval came from the International Monetary Fund. It should be reminded that the proposal to legalize BTC was made by the country's President N. Bukele, who will appear before representatives of the IMF on Thursday.
The transition to bitcoin will help El Salvadorians working outside of El Salvador make fast, secure and transparent transfers to their families. The authorities decided to take such a step due to the underdevelopment of the banking system and the lack of access to it for many citizens.
For more than 20 years, the national currency of El Salvador has been the US dollar, and almost 20% of local GDP are remittances from abroad (up to $ 6 billion in 2019, one of the world's largest indicators of dependence on the successful work of guest workers). However, some experts say that dependence on the funds transferred by labor migrants can reach 70% of GDP.
The law will come into force in 90 days, that is, in mid-September, the country will begin to make transactions in BTC.
In addition, now for 3 BTC you can purchase a residence permit (at the exchange rate as of 06/09/2021, this is about 100 thousand US dollars). Soon there will be a "national" bitcoin wallet for the citizens of the country, although no one forbids using other wallets.
In El Salvador, a $ 150 million trust fund will be created (this is only 4,400 BTC). It should help compensate for rate fluctuations. At the same time, we are not talking about the de-dollarization of the economy, in which both currencies - fiat and crypto - will have the same "rights".
Bukele also suggested mining bitcoins using ... volcanoes. The state-owned geothermal energy company LaGeo should study this possibility. As of 2020, it accounted for up to 20% of all electricity generated in the country. With a predicted potential of 644 MW, no more than 1/3 is used. A mining hub can be created near a new geothermal well with a capacity of 95 MW.
Paraguay, Peru, Mexico and many countries in Central and Latin America can follow the example of El Salvador. In this case, however, the IRS (Internal Revenue Service) and other regulators may have a reason to consider BTC as a foreign currency and levy taxes on transactions with it. But let's not forget that bitcoin does not belong to El Salvador, Mexico or China. It is a completely new and alternative means of payment.