It’s not often that you’d find a leader bold enough to make a statement such as this, but the Salvadoran president, Nayib Bukele, has recently announced the country’s plans for introducing Bitcoin as legal tender in the country.
Should congress back this proposal, El Salvador will become the first country in the world to officially adopt the cryptocurrency, which will be used alongside the country’s official currency, the U.S. dollar.
About 20% of El Salvador’s gross domestic product (GDP) is made up of money sent home from abroad, as over 2 million Salvadorans live and earn their incomes outside of the country and send over $4 billion back each year.
President Nayib Bukele believes that if the country were to adopt bitcoin as legal tender, it would significantly simplify the process and reduce the costs of sending money home for Salvadorans living abroad.
“In the short term, this will generate jobs and help provide financial inclusion to thousands outside the formal economy,” in a statement by Bukele at a Bitcoin conference in Florida. He added that it could also boost investment in the country.
The president also stated that should the proposal pass, it would open financial services to the 70% of Salvadorans that do not own bank accounts. “This will improve lives and the future of millions,” said Bukele.
Many of the world’s central banks are looking at establishing their own digital currencies. The Bank of England had announced its plans for a CBDC in April, and China has already started extensive testing on their own central bank digital currency some time ago, which continues regardless of their recent crackdown on crypto-related services and the mining of cryptocurrencies. But a country adopting an existing cryptocurrency is unheard of.
The young Salvadoran president, only 39 years old, seems very convinced that this move would not only assist in providing faster, safer, and easily accessible financial services to the public, but it would also save the Salvadoran citizens living abroad a large portion of their transactional fees when sending money home.
In a recent report from BBC, an expert with the Digital Currency Global Initiative, Mr Rohan Grey, said that Mr Bukele was “a young president trying to capitalise on a popular image”.
He added that “There is a lot of PR value in announcing something like this even if you haven’t worked out all the details,” and also said that by adopting a cryptocurrency as legal tender, the country would give major control “to a network that isn’t stable, doesn’t have accountable actors and doesn’t have a track record of providing the kind of price stability and liquidity that a currency is supposed to provide”.
Of course, there are still many questions as to how El Salvador would accomplish this feat. Some experts believe that it would most probably take a major overhaul of the country’s entire financial system to incorporate Bitcoin as a legal tender. But this remains to be seen.
The president has said that the legislation would be sent to congress next week. Nobody was expecting El Salvador to be leading the way to global adoption. If this proposal does indeed pass, they better do a damn good job at it, as the world will be keeping a close eye on the development.