El Salvador to become first country to use bitcoin in everyday life

Bitcoin is to become legal tender in El Salvador, the country's president said, making it the first nation to adopt a cryptocurrency for everyday use.

Lawmakers in the Central American nation's Congress passed a bill late on Tuesday that will eventually allow the famously volatile digital currency to be used for many aspects of daily life, from property purchases to tax contributions.

"The #BitcoinLaw has just been approved by a qualified majority" in the legislative assembly, President Nayib Bukele tweeted after the vote late on Tuesday.

"History!" the president added.

The 39-year-old leader said a majority of 62 out of 84 lawmakers approved the bill, which he proposed just last week. 

The law passed with the support of Bukele's allies despite minority opposition parties – who had criticised the speed of the vote – refusing to back it.

The law would create mechanisms to help Salvadoarans, especially small businesses, quickly convert payments they receive in bitcoins into dollars – helping them avoid the risk of the value plummeting, as it has in recent days

Under the law, bitcoin must be accepted by firms when offered as payment for goods and services. Tax contributions can also be paid in the cryptocurrency.

READ MORE: Bitcoin could become a legal tender in El Salvador

Government aims to shore up remittances through bitcoin

Cryptocurrencies have soared in popularity due to their use as a store of value, the relative anonymity they offer users and wild price fluctuations that present opportunities for greater profits than investing on the regular stock exchanges of the world.

The volatility of bitcoin – currently priced at $33,814 – and its murky legal status have raised questions about whether it could ever replace traditional currency in day-to-day transactions.

But El Salvador – a small nation where four out of 10 people live in poverty – has turned to the top crypto asset that has been backed by billionaires like Elon Musk and large financial companies such as PayPal in a bid to boost its remittance-reliant economy.

El Salvador's main currency is the US dollar and it remains unclear how the country plans to implement bitcoin as a functioning currency.

Its use as legal tender will begin in 90 days, with the bitcoin-dollar exchange rate set by the market.

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The Salvadoran leader has hailed the virtual currency as "the fastest growing way to transfer" billions of dollars in remittances and to prevent millions from being lost to intermediaries.

Remittances from Salvadorans working overseas represent a major chunk of the economy – equivalent to roughly 22 percent of Gross Domestic Product.

In 2020, remittances to the country totalled $5.9 billion, according to official reports.

Before the vote, Bukele said adopting the cryptocurrency would bring "financial inclusion, investment, tourism, innovation and economic development" to the country.

"This is a law that will put El Salvador on the world's radar, we will be more attractive for foreign investment," Romeo Auerbach, deputy of the Grand Alliance for National Unity party, an ally of Bukele, said.

The Economy Ministry noted that 70 percent of Salvadorans do not have access to traditional financial services and it said the country “needs to authorize the circulation of a digital currency who value exclusively follows free market criteria” to stimulate growth.

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Cryptocurrencies' rise

The cryptocurrency market grew to more than $2.5 trillion by the middle of last month, according to the Coinmarketcap page, driven by interest from increasingly serious investors from Wall Street to Silicon Valley.

Between the beginning of 2020 and a peak in mid-April of $64,870, the price of bitcoin gained nearly 800 percent. 

But since then, the cryptocurrency has fallen in value by more than 50 percent.

Its price has fallen sharply towards a symbolic $30,000 threshold it has not crossed since January, dragging other cryptocurrencies in its wake.

After Tuesday's vote, the price jumped more than five percent.

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