El Salvador Is Creating Legislation To Recognize BTC As Legal Tender

June 7, 2021 03:30 PM
Crypto Story of the Day

Crypto Story of the Day




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Crypto Story of the Day

The president of El Salvador revealed the country is developing legislation to recognize BTC as legal tender. While the scope of the legislation isn’t yet clear, El Salvador is set to become the first country to broadly embrace the asset at a national level.

The planned legislation was revealed via a prerecorded message from the country’s President, Nayib Bukele, during a Bitcoin Miami presentation from Jack Mallers, the CEO of Zapp. The firm is best known for payments app Strike, which uses the Lightning Network, a BTC layer 2 tech. 

According to Mallers, his firm has been working with the government of El Salvador over the past several months to draft the bill and develop payments solutions for local usage. 

Mallers stated that thousands of Salvadorians, who otherwise often don’t have access to traditional banking services, have been onboarded to the Strike app. The app allows users to purchase and hold BTC and send fiat by relying on the Lightning Network. USD transfers via the Strike app are made by selling USD against Lightning-based BTC, which is then used to purchase USDt that’s credited to the recipient’s Strike app. 

According to Mallers, this approach allows for “instant inbound remittance for no fee.” Earlier in the year, Mallers described the decision to launch in El Salvador as being motivated by “our ability to deliver financial tools to emerging markets.”

El Salvador is also the “[6th highest-ranked] country in inbound remittance from the [U.S.]” and uses the USD as its official currency. 

The bill, whose details remain scant, cites monetary expansion by central banks as driving the need to “authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank.” The bill also still needs to be passed by the country’s legislative assembly. 

In March, El Salvador adopted a National Financial Inclusion Policy which seeks to boost access to financial services for “unbanked'' citizens. According to some estimates, 30% of El Salvador’s population has access to a bank account.  

El Salvador adopted the USD in 2001 with the goal of addressing a broad range of economic issues. A number of countries in the region, such as Panama and Ecuador, also use the USD as legal currency. 

In Europe, Montenegro uses the EUR, despite not being a member of the Eurozone. As such, nondomestic currency adoption is relatively widespread and the adoption of BTC as legal tender is novel in the specificity of BTC itself. 

Furthermore, in a cash-driven economy dominated by informal employment, the use of BTC, compared to USD, wouldn’t put officials in any greater disadvantage in terms of tax collection. Little would change for the country’s bureaucracies if BTC, along with the USD, were to see widespread use. 

Arguably, BTC gives local authorities a greater overview of its monetary policies than the EUR or USD, whose management is designed to favor the countries issuing those currencies. Conceivably, BTC has now emerged on a list of currencies which nations can choose to adopt if they’re unable to manage domestic currencies.

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