, El Salvador
(AP) — El Salvador’s Legislative Assembly has approved legislation making the cryptocurrency Bitcoin
legal tender in the country, making El Salvador the first country to do so, just days after President Nayib Bukele
proposed it at a Bitcoin conference.
According to the legislation approved late Tuesday, the digital currency can be used in any transaction, and any business
, with the exception of those lacking the technology to do so, will be required to accept payment in Bitcoin. The US dollar
will also remain El Salvador's currency, and no one will be forced to pay in Bitcoin.
“Every restaurant, every barbershop, every bank....everything can be paid in US dollars or Bitcoin, and nobody can refuse payment,” Bukele said during an hour-long social media
hangout with thousands of US-based Bitcoiners as the bill was debated in El Salvador’s congress
The market will determine the exchange rate between the two currencies, and all prices will be expressed in Bitcoin — though the dollar will remain the currency of reference for accounting purposes.
The government will encourage people
to learn how to use Bitcoin for transactions.
Ministry stated that 70% of Salvadorans lack access to traditional financial services, and that the country “needs to authorize the circulation of a digital currency whose value solely follows free market criteria” to stimulate growth.
“The Bitcoin law
is ambitious, but simple,” Bukele said on Twitter
. “Furthermore, it is well structured to have zero risk for those who do not want to take risks, and the government will guarantee the exact value in dollars at the time of the transaction.”
The law would establish mechanisms to assist Salvadoarans, particularly small businesses, in quickly converting Bitcoin payments into dollars, thereby avoiding the risk of the currency's value plummeting, as it has in recent days.
“They have to take the Bitcoin, but they don’t have to take the risk,” Bukele explained. “We might make some money
or we might lose some money, but it doesn’t matter because the purpose of the trust fund is not to make money, but to support the legalization of Bitcoin.”
Furthermore, Bukele stated that anyone who invests three Bitcoins in El Salvador—currently worth around $105,000—will be granted permanent residency.
Bukele stated that he would meet with the International Monetary Fund
on Thursday to discuss his plans, and he denied that the move was an attempt to de-dollarize the economy.
“The goals of having the US dollar as legal tender are replicated on steroids
with Bitcoin,” he said, adding that having both currencies as legal tender will be beneficial.
The law will take effect 90 days after its official publication, with interim implementing rules published by the Central Bank and financial system regulators.
Bukele's New Ideas party has a supermajority in the new congress, which took office on May 1. On its first day, it ousted the justices of the Supreme Court
's Constitutional Chamber and then replaced the Attorney General, raising concerns from the US and others about Bukele's concentration of power.
Other countries in the region, such as Venezuela and the Bahamas, have adopted digital currencies, but none have adopted Bitcoin, the original cryptocurrency.
Bitcoin, designed as an alternative to government-backed money, is based largely on complex math, data-scrambling cryptography — hence the term "cryptocurrency" — a lot of processing power, and a distributed global ledger called the blockchain, which records all transactions. No central bank or other institution has any say in its value, which is set entirely by people trading Bitcoins and which has a monetary value of zero.
According to the tracking site Coindesk, Bitcoin and other popular digital currencies, including Ethereum and Dogecoin
, all fell sharply on Wednesday. Bitcoin, which rose above $60,000 earlier this year, fell 7% to $32,690.
The legislation created a government trust fund to ensure automatic conversion to dollars.
Carlos Carcach, a professor at El Salvador's Superior School of Economics and Business, argued that adopting Bitcoin as legal tender "is neither necessary nor convenient," but added that "as long as there is someone who accepts payment with Bitcoin, just as they accept dollars, there would be no problems."
He pointed out that Bitcoin is extremely volatile, so investors "risk becoming rich one day and poor the next."
Opposition lawmaker Rodrigo vila of the conservative Arena party complained that the legislation was not sufficiently debated in the Legislative Assembly before passage, and that no testimony from economic or cybercrime experts was provided.
According to US officials, Bitcoin was used to pay the ransom in the Colonial Pipeline cyberattack
, which forced the operator of the nation's largest fuel pipeline to halt operations last month.
El Salvador's action brought back memories of the Arena-controlled congress's decision to dollarize the country's economy on November 30, 2000.
Last year, El Salvador received $6 billion in remittances from Salvadorans living abroad, accounting for roughly 16% of the country's GDP; Bukele has stated that Bitcoin could eliminate the costs of sending that money home.
“This isn’t just for the rich; it’s for everyone,” said Bukele, 39, waxing philosophical about the power of cryptocurrency to loosen central banks’ grip and empower young entrepreneurs.
“We build our own future, so why do we have to resign ourselves to a dystopic future?” he asked, adding that he is enjoying the moment without fully comprehending the shift in international finance that his tiny homeland may have triggered. “This will be a huge gamechanger not just for El Salvador, but for the world. It’s beautiful to be part of a huge change in humanity.”
This report was contributed by AP writer
Joshua Goodman in Miami